Raising Interest Rates Can’t End Well!

The Federal Reserve would like to raise target interest rates because of inflation concerns and concern that asset bubbles are forming. Part of their concern seems to arise indirectly from the rise in oil prices, relative to their low level in early 2016.

Figure 1. WSJ figure indicating likely reasons for rate hike.

A finite world does not behave the way most modelers expect. Interest rates that worked perfectly well in the past don’t necessarily work well now. Oil prices that worked perfectly well in the past don’t necessarily work well now. It seems to me that raising interest rates at this time is very ill advised. These are a few of the issues I see:

[1] The economy is now incredibly dependent upon rising debt to prop up its spending. The pattern of total debt to GDP for the United States is shown in Figure 2.

Figure 2. United States’ debt to GDP ratios based on Federal Reserve Z1 data and BEA GDP data. The red line represents the increase over the latest three years.

There was a huge increase in debt in the period leading up to the 2008 crash. Every year between 2001 and 2008, the increase in debt was greater than four times the increase in GDP. In fact, for some years in that period, more than $8 of debt were added for every dollar of GDP added.

We now seem to be starting a new run up in debt. In 2015, the amount of debt added was $2.5 trillion ($66.1 trillion minus $63.6 trillion), while the amount of GDP added was only $529 million. This indicates a ratio of over 4.7 for the single year of 2016. (Figure 2 shows only three-year averages, because of the volatility of amounts.)

[2] The vast majority of the debt run-up since 1981 (Figure 2) seems to have been enabled by falling interest rates (Figure 3). Given how dependent we are now on large increases in debt to produce GDP, it would seem to be dangerous for the Federal Reserve to raise interest rates. 

Figure 3. US Federal Bonds 10 year interest rates. Graph produced by FRED (Federal Reserve Economic Data).

With falling interest rates, monthly payments can be lower, even if prices of homes and cars rise. Thus, more people can afford homes and cars, and factories are less expensive to build. The whole economy is boosted by increased “demand” (really increased affordability) for high-priced goods, thanks to the lower monthly payments.

Asset prices, such as home prices and farm prices, can rise because the reduced interest rate for debt makes them more affordable to more buyers. Assets that people already own tend to inflate, making them feel richer. In fact, owners of assets such as homes can borrow part of the increased equity, giving them more spendable income for other things. This is part of what happened leading up to the financial crash of 2008.

The interest rates that the Federal Reserve plans to change are of a different type, called “Effective Federal Funds Rate.” These also hit a peak about 1981.

Figure 4. US Federal Funds target interest rate. Graph produced by FRED (Federal Reserve Economic Data).

[3] The last time Federal Funds target interest rate was raised, the situation ended very badly.

Figure 4 (above) shows that the last time Federal Reserve target interest rate was raised was in the 2004-2005 period. This was another time when the Federal Reserve was concerned about the run-up in food and energy prices, as I mention in my paper Oil Supply Limits and the Continuing Financial Crisis. The higher target interest rate was somewhat slow acting, but it eventually played a role in bursting the debt bubble that had been built up. In 2008, the amount of outstanding mortgage debt and consumer credit started falling, and oil prices fell dramatically.

It is ironic that the US government is again trying to bring down food and energy prices, when they are at a price level similar to the price level when they tried this approach the last time.

Figure 5. Monthly average Brent oil prices, with notes regarding when the Federal Reserve changed its target interest rate.

The Federal Reserve looks at its favorite metrics, PCE inflation and PCE inflation excluding food and energy. From this high-level view, it is likely that they have no real understanding of exactly what energy price problems are causing the strange result. With this high-level view, they do not realize that a big contributor to the rising costs is the increase in oil prices between the January – March 2016 period, when they were under $40 per barrel, and recent prices, which were above $50. (They are now back below $50 per barrel, but this would not be apparent from the metric.)

When this high-level view is used, it is easy to miss how low energy prices are today, relative to the needs of energy producers. Most people who have been following what is happening in the oil industry know that prices are not high, relative to the prices needed for profitability. Even if some US companies claim to be profitable at $50 per barrel, it is clear that, in general, the industry cannot withstand prices as low as they are today. At the current price level, investment is too low.

Part of the problem is that oil exporters need higher prices if they are to obtain adequate tax revenue to fund their programs. For example, Saudi Arabia has found that because of its falling tax revenue, it needs to borrow money to maintain its programs. This is a big change from being able to set aside money in a reserve fund, out of excess tax revenue. This is another place where the shift is toward more debt.

[4] The pattern the Federal Reserve seems to want to follow is the 1981 model, in which temporary high interest rates seemed to force energy prices down for a long time.

If we look at oil prices compared to US wages per capita (dividing total wages by total population), we find that oil “affordability” was at a low point in 1981. We saw previously in Figures 3 and 4 that interest rates were raised to a very high level at that time. The gray stripes in Figures 3 and 4 indicate that a recession followed.

Figure 6. Average barrels of crude oil affordable by US residents, calculated by dividing the average per capita wages (calculated by dividing BEA wages by population), by EIA’s average Brent oil price for each year.

Figure 6 shows that after interest rates fell, affordability rose until 1998. To a significant extent this was the result of falling prices, but it also was the result of a larger share of the population working, and thus contributing to rising wages.

There were many things that allowed this benevolent outcome to happen. One was the fact that we already knew about available oil in the North Sea, Mexico, and Alaska. When this oil came online, oil prices were able to drop back to a much more affordable level. It is very doubtful that shale oil could play a similar role today, especially if it is likely that higher interest rates will drop oil prices from today’s $50 per barrel level.

One thing that helped improve affordability in the post-1981 period was improved gasoline mileage. There were also cutbacks in oil use for home heating and for electricity generation.

Figure 7. Average on-road fuel efficiency by Sivak and Schoettle, “On-Road Fuel Economy of Vehicles in the United States: 1923-2015,” http://www.umich.edu/~umtriswt/

Figure 7 suggests that the earliest changes in fuel economy provided the biggest savings. In fact, overall savings after 1993 are quite modest.

One factor that helped reduce oil consumption both in the 1970s and in the 2008 to 2013 period was high prices. Now that oil prices are lower, we cannot expect as good a result. If oil prices drop back further, there is even less incentive to conserve.

[5] Adjustments made using Quantitative Easing (QE) (a way of producing low interest rates) appear to have had a rapid, significant impact on oil prices.  

In late 2008, after oil prices had crashed, the US Federal Reserve implemented QE. Using QE created very low interest rates, which seem to have had an impact on world oil prices.

Figure 8. Monthly Brent oil prices with dates of US beginning and ending QE.

Clearly, lower interest rates encourage more borrowing, and discontinuing a program that gives very low rates would tend to have the opposite impact. Thus, we would expect the direction of the oil price changes to be similar to those shown on Figure 8.

One hypothesis regarding the rapid impact of QE was that it encouraged borrowing in US dollars, in order to purchase bonds in other currencies with higher interest rates (“carry trade”). When QE ended, the carry trade was cut off, reducing investment in countries with higher interest rates. Instead, there was more interest in investing in the US. These changes led to the US dollar rising relative to many other currencies. Since oil is priced in US dollars, these shifting relativities made oil more expensive in non-US dollar currencies.  Thus, the affordability of oil declined for buyers outside the US. It was this decline in affordability outside the US that brought down oil prices. Figure 9 shows the shift in currency levels when the US discontinued QE in 2014.

Figure 9. US Dollar vs. Major Trade Weighted Currencies. Chart created by FRED (Federal Reserve Economic Data).

Increasing Federal Reserve target interest rates would seem to have the effect of further raising how high the US dollar floats compared to other currencies. If this happens, we would expect lower oil prices, and more problems with excessive supply.

[6] The way increased lending seems to move the economy along is by using time shifting to provide a “layer” of future goods and services that can be used as incentives for businesses to invest in making goods and services now.

The problem when making goods of any kind is that resources need to be purchased and workers need to be paid, before the finished product is available for sale.

Figure 10. Image created by author showing how goods and services are created. It also needs a “government services sector,” but it didn’t fit easily on the slide.

As a result, at the time goods and services are produced, there aren’t enough already-created goods and services to pay all of those who have contributed to the effort of making the goods and services. To work around this problem, debt or a product similar to debt is needed to pay some of those contributing to the process of creating future goods and services.

One way of thinking about the situation is that an increase in debt during a time period adds a layer of future goods and services that can be distributed to those contributing to the effort of making the goods and services (Figure 11). This significantly increases the amount of goods and services to be distributed above the level that would be available on a barter basis, based on goods that have already been produced.

Figure 11. Figure by author showing how the “increase in debt” effectively adds another layer of goods and services that can be distributed. (As with Figure 10, this chart should include a category for government services as well.)

[7] The spending ability of US citizens has been lagging behind, even with the huge amount of debt being added to the economy. If the Federal Reserve raises interest rates, it will tend to make the situation worse.

The biggest expenditure for most households is housing costs, either for an apartment or a new home. As with oil, we can compare affordability by comparing prices to per capita wages (total US wages/total population). On Figure 12, one amount shown is the median rent for unfurnished apartments in the US, based on US Census Bureau data; the other is The People History’s estimate of “new home” prices over the years. In general, affordability has been falling. Figure 12 shows that the fall in affordability of apartment rent is a relatively recent phenomenon. The fall in affordability of home prices is a long-term phenomenon, no doubt enabled by falling interest rates since 1981.

Figure 12. Comparison of new home prices from The People History and median non-subsidized rental asking prices based on US Census bureau data. These are divided by (total US wages/ US population) from the US BEA. The indexes are different for home and apartments, chosen so that two would show separately on the chart. If amounts shown are falling over time, housing is becoming less affordable.

Another product whose affordability is of interest is electricity. Electricity is an energy product whose affordability is important, because it is used in residential, commercial, and industrial locations. The affordability of electricity tends to be less volatile in pricing than oil, whose affordability was shown in Figure 6. Because the pricing of electricity is more stable, I have shown the affordability of electricity at three different spending levels:

  • Per Capita Wages – Total US wages divided by total US population.
  • Per Capita DPI – Total Disposable Personal Income (DPI) divided by total US population. Disposable Personal Income includes government transfer payments (such as Social Security and unemployment payments), in addition to wages. It also includes “proprietors’ income,”which is a relatively smaller amount.
  • Per capita DPI+Debt – Total Disposable Personal Income, plus the increase in Household Debt during the year, divided by population.

Figure 13. Quantity of electricity that an average worker could afford to buy, using three different definitions of income. (Average wages are based on BEA total salaries and wages, divided by BEA total population, and Disposable Personal Income is defined similarly, using BEA data. DPI plus debt includes the change in Household Debt, from the Federal Reserve’s Z1 report, in addition to DPI in the numerator.)

Based on Figure 13, electricity was becoming more affordable until 2001 on a wages-only basis. Since then, its cost has been relatively flat.

On a DPI basis, electricity was considerably more affordable until 2004, after which it declined, and then rose again.

On a DPI + Debt basis, there was a much bigger jump in affordability. This big increase in debt corresponds to the housing bubble of the early to mid 2000s. Interest rates were lower and underwriting standards lessened, so that almost anyone could buy a home. This allowed a run-up in home prices. Homeowners could borrow this equity and use it for whatever purpose they chose–for example, fixing up their home, buying a new car, or going on a vacation. The big increase in DPI+Debt, relative to DPI, gives an indication of the extent to which the housing-related debt bubble in the early 2000s affected spendable income.

Which of these scenarios is really correct? It depends on the segment of the economy a person is looking at. For people of modest income, in other words, those who rent apartments, the wage-only scenario is probably the most representative. For people who have high incomes and own a home, the DPI plus Debt scenario is probably more representative.

[8] All income seems to ultimately derive in part from rising debt, and in part from energy consumption. If interest rates are too high, the required interest payment exceeds the benefit of time shifting.

We can see from Figure 13 that debt is very helpful in producing income for workers. Some of this comes from the government transfer payments, funded by debt. Some of this comes from the wages paid by businesses, funded in part by shares of stock, which are debt-like in nature. The currency with which workers are paid is, in fact, debt. A person can see the connection, by thinking of currency as being similar to “gift cards,” issued by a business. The business would need to record the value of these gift cards as a liability on its balance sheet.

The underlying problem giving rise to the need for debt is “complexity,” and the need to obtain the services of many trained people and of many types of tools, before goods and services can actually be created. All of this builds extra expense and delays into the system, in the manner described in Figures 10 and 11. Somehow, there must be interest payments to compensate for the time shifting that is necessary: the whole string of events that must lead up to producing the products that are needed. Tools must be made far in advance of when they are needed. In fact, there is a whole string of “tools to make tools” that takes place. Factory buildings need to be built, and roads need to be built. Workers must be trained. In order for the people and businesses involved in these processes to be compensated for their effort, and induced to delay their own consumption of goods and services, there need to be interest payments made for the time-delay involved.

Debt (together with shares of stock, which are debt-like) cannot operate the economy alone. Energy products are also needed to provide the physical transformations required. These include heat and transportation, and electricity to operate devices that use electricity. Of course, human workers are needed as well. The major pieces of the system, and the way they operate together, are shown in Figures 10 and 11.

It would appear that an economy can start “from scratch,” using only debt, plus available resources (including energy resources, such as biomass for burning), and some sort of government (perhaps a self-declared king). If the king sees a productive project that might be undertaken–perhaps building a bridge, or cutting down more trees for farmland–the king can impose a tax on the citizens, and use the tax to hire a group of laborers to use the available resources. Once the tax is imposed, it is a debt of the citizens. It can be used to pay the laborers who do the work.

The debt-based system seems to build upon itself. As more wages are available, these wages allow workers to take out loans, and allow businesses to create new goods and services that can be purchased using these loans. These loans are promises that can be exchanged for future goods and services. Since energy is used in creating all goods and services, these loans are more or less guarantees that the economy, and its use of energy products, will continue in the future.

The thing that connects debt to the rest of the system is the interest payments required for time shifting. When the system is relatively efficient, the return on investment is high, so interest payments can be high. As diminishing returns set in, interest rates need to be lower. We are now encountering diminishing returns in many areas: extracting fossil fuels, extracting minerals, producing enough fresh water for a rising population, creating an adequate supply of food from a fixed amount of arable land, creating new antibiotics as bacteria become drug resistant, and the cost of finding new drugs to treat diseases that affect an ever-smaller share of the population.

[9] It is relatively easy to make economic growth occur when energy products are becoming more affordable, relative to spendable income. When energy products are becoming less affordable, it becomes virtually impossible for economic growth to occur.

We know that historically, the cost of energy products has tended to fall over time. This has been described in more than one academic paper.

Figure 14. Figure by Carey King from “Comparing World Economic and Net Energy Metrics Part 3: Macroeconomic Historical and Future Perspectives,” published in Energies in Nov. 2015.

A United Nation’s report also shows the same pattern (the bottom two categories are energy related):

The only way that energy costs can fall relative to GDP, at the same time that energy use is rising, is if energy products are becoming less expensive over time, compared to the incomes of the citizens. This falling price level allows more energy products to be purchased. As energy prices drop, it is possible for the economy to afford the increasing quantity of energy products required to produce even more goods and services.

There are many ways that energy products can become less expensive. For example, the mix can shift among different energy products, shifting to the less expensive products. Or new techniques can be found that make extraction less expensive. Finding more efficient ways to make use of energy products, such as the increasing miles per gallon shown in Figure 7, also contributes to the falling relative cost to workers. Of course, “falling EROEI” tends to work in the opposite direction.

Unfortunately, we are now running out of ways to truly make energy use cheaper over time. The ways we seem to be down to now are (a) paying energy companies less than their cost of extraction, and (b) reducing interest rates to practically zero.

We can see from Figure 6 that oil was becoming more affordable relative to wages between 1981 and 1998. Falling interest rates and rising debt seemed to play a role in this, as well as success in drilling for oil in places such as the North Sea, Mexico and Alaska. Since then, the only way that oil affordability could rise was by oil prices falling below the cost of extraction, starting in mid 2014.

The situation for electricity is shown in Figure 13. Electricity was becoming more affordable on a “wages-only” basis, until 2000. Since then it has plateaued. The economic push that would have come from falling electricity prices must come from elsewhere–presumably from adding more debt.

Affordability of electricity on a “DPI plus debt” basis rose considerably more, with a peak in 2004. Thus, adding more debt, in the form of transfer payments and rising debt for homes and vehicles, added considerable spendable income. But it has not been possible to regain the affordability of the 2004 period in recent years.

We are now reaching limits because we no longer are truly seeing a reduction in energy costs. Instead, we are seeing very low interest rates and oil prices lower than the cost of production. These seem to be signs that we now are reaching limits. Energy prices really need to drop for the economy to grow; the economy will make them drop, whether or not producers can profitably extract oil at the low cost that is affordable by the citizens.

[10] China seems to be cutting back on growth in debt now, at the same time the US is talking about increasing interest rates. Energy products, especially oil, are sold to a world market. If China cuts back on debt at the same time as the US raises interest rates, energy prices could drop dramatically. 

Figure 16. UBS Total Credit Impulse. The Credit Impulse is the “Change in the Change” in debt formation.

UBS calculates a global “credit impulse,” showing the extent to which there is a trend toward increasing use of debt. According to their calculations, since 2014, it is China that has been keeping the Global Credit Impulse up. If China is cutting back, and the US is cutting back as well, the situation starts looking like the 2008-2009 period, except starting from greater problems with diminishing returns.

Observations and Conclusions

The economy looks to me like a type of Ponzi Scheme. It depends on both rising energy consumption and rising debt. Judging from the problems we are having now, it seems to be reaching its limit in the near term. Raising interest rates will tend to push it even further toward its limit, or over the limit.

Debt is used to pay participants in the economy using a promise for future goods and services. This allows the economy to appear to distribute more goods and services than are actually available. In a way, adding debt is like being able to manufacture future energy supplies that can be used to pay those who participate in making the goods and services we produce today. When energy products are high-cost to produce, and delayed in timing (such as wind and solar PV), the need for debt especially rises.

Part of our problem today is the extent of specialization of those analyzing our current problems with energy and the economy. This means that virtually no one understands the full problem. Bankers seem to think that debt, and interest rates on debt, can solve all problems. Energy analysts think that energy resources in the ground are all-important. They both create incorrect analyses of the overall problem. Rising debt is needed, if energy products that have been created are to be absorbed by the world economy. The energy gluts we are seeing are signs of inadequate wage growth. A major function of growing debt is to add wages. Unwinding debt leads to the kinds of problems that we encountered in 2008.

It is tempting for world financial leaders to think that they can find a solution to today’s problems by using higher target interest rates to slightly scale back economic growth. I don’t think that this is really a good option. The world economy is operating at too close to “stall speed.” The financial system is too fragile. If any solution can be expected to work, it would seem to need to be in the direction of re-starting QE. Even if it produces asset bubbles, it may keep the world economy operating for a bit longer.

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 inadequate supply.
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2,229 Responses to Raising Interest Rates Can’t End Well!

  1. CTG says:

    Fast Eddie – your idol / hero did it again !

    Elon Musk Launches Company To Hook Up People To Computers


    • Greg Machala says:

      Count me out of Elon’s plan.

      • Fast Eddy says:

        Just thinking…

        Elon Musk and Scott Nearing are very much one and the same…

        They are both ‘Jesus’ … in their own way.

        Nearing espoused simple living as a sustainable path for humans — and people gobble it up — in spite of the fact that he was not living a sustainable life at all – he was using factory tools and cement and medicine and roads and much of what BAU had to offer…

        Nearing is as close to an example of BAU Lite that you can get — although if we all lived like he did there would be no BAU at all … in short order

        But the masses are willing to ignore the facts — his is a good story — it resonates big time — trying to explain to someone who has the faith is like trying to explain to someone that it is ridiculous to think that a man walked on water — died for us — rose from the dead — and lives in the sky — and oh — he needs us to give money and is on a massive ego trip that requires us to pray to him — or we burn in hell….

        Skip to Elon — he is even more ridiculous than Nearing — EVs are a total joke — living on Mars is a total joke…

        But there are a lot of people who worship him — he also needs money to keep the fairy tale alive… and he gets it — donations from fools who buy his jalopies — and absurd amounts in the form of subsidies from the US govt…

        They both offer salvation — for more flavours of salvation you can check out Peak Prosperity that will sell you an end of world plan … Steve over at SRC report will flog you gold and silver and store it for you …. Jimmy K will sell you a world made by hand….

        The list of snake oil salesmen is endless… they are big time popular these days…. and as things get more grim the more we will reach for every more ridiculous ‘solutions’

        • Pintada says:

          Dude! Making complete sense today!!

          You did skip the permaculturists, and vegans, but still a nice rant.

        • jerry says:

          and oh — he needs us to give money and is on a massive ego trip that requires us to pray to him — or we burn in hell…
          Really FE? Nowhere in the Holy Scriptures will one find this kind of nonsense?

          and look if God isn’t communicating with the world or at least trying to by way of what Children of course.

  2. dolph says:

    The idea that today is a golden age, and tomorrow will be better, is a western, linear view of the world. This is the linear progress view, and it’s quite understandable considering how far we have gotten.

    And the view that the past was somehow utopian is also a linear view. Namely, linear decline.

    The truth is that all civilizations go in cycles. The historical record is absolutely clear on that. They last sometimes thousands of years and collapse in a few centuries, while some last a few centuries and collapse in decades.

    Our own civilization is about 200-500 years old depending on which dates/definitions used, and the blowoff top is something like 40-100 years old, depending on definitions. Our decline will probably be something like 40-50 years.

    • ejhr2015 says:

      It’s a Dynasty, a techno-industrial dynasty. Dynasties never last much beyond 300 years max. We are closing in on ours considering it began in about 1750. It peaked before 1971and we have been either coasting or declining ever since. The fiat monetary system, the only possible one under these circumstances, has allowed, courtesy of the rule by bankers, for us to borrow our way forward. So we cover our decline by consuming resources in advance. This is now a zero sum operation so we have ordained that we will crash. Pity nobody wants to make plans, even if just to smooth a path forward without instant chaos. Chaos will not be fun!

    • It will be interesting to see how long our civilization lasts without banks or electricity.

      • Greg Machala says:

        Well, if banks and electricity go away that is pretty much instantly the end. No electricity means no fuel at the pumps. It is over. Within 24 hours traffic would stop moving. Anyone that would attempt to drive anywhere after this point would be mobbed by people either desperate to leave the cities or that have run out of gas trying to do so. Lets pray things hold together longer.

      • doomphd says:

        I would guess about 2 weeks, give or take a few days. We had a 5 second blackout here a few days ago, just after dark. It’s a real showstopper.

        • Fast Eddy says:

          Let’s examine what a single day without power looks like:

          July 13-14, 1977 New York City blackout

          No sooner had the lights gone out than the looting and arson began. Over a thousand fires were reported, and more than 1,600 stores damaged or ransacked.

          Power was slowly restored over the next day, with the entire city online by 10:39 p.m. All told, in 24 hours 3,700 people had been arrested and more than $300 million of property had been damaged.


          Now imagine what that looks like — when the masses realize that the power is never going back on…..

      • Aubrey Enoch says:

        I had a gentleman come to my farm back about 2008 or so. It was when gas was up over $3.50/gal. He had bought a bunch of blackberry plants and we got his order all loaded up. He had a nice fancy pickup. We started talking about the state of the economy. He said he was a computer programmer for a supermarket chain and that there was three days inventory in their stores. Then he said,
        ”you know when those trucks stop running there won’t be a dog or cat nowhere inside of a week”.

        • Fast Eddy says:

          or a cow, pig, chicken or rat….

          7.5 B desperate, hungry people will really do a number on the animal population …

          Currently reading a book about the Irish famine — there is mention of people having a green tinge on their teeth…

          From eating grass….

          Mind your young children post BAU….

          • ejhr2015 says:

            Did you know there was PLENTY of food produced during Ireland’s famine? The PTB of the day exported it all leaving none for the locals. Seriously criminal behaviour. It amazes that the Irish are not so anti English as such an event would cause.

            • Fast Eddy says:

              Yep – they were exporting huge amounts of grain and corn….

              Another problem was that the English government did not want donated food to interfere with the free market — so when organizations sent food it was not given to the starving — rather they had to pay for it.

              We won’t run into this sort of problem post BAU — because there will be an epic shortage of food.

            • DJ says:

              Why didn’t they go hordeing?

            • hkeithhenson says:

              I think both of you might do some reading on European history. For example: “In England, the most prosperous kingdom affected by the Great Famine, there were famines such as in 1315–1317, 1321, 1351 and 1369.” And that’s just for that century.

              I know the industrial revolution doesn’t please people such as FE, but it did bring an end to famine. A lot was due to railroads.

              A world wide drought would cause serious problems with the food supply. But those of us in places with a high meat diet would not starve if the food now fed to animals were diverted into human food. At least if it didn’t get too bad or run too long.

            • Fast Eddy says:

              I am on record as having a passionate romance with the industrial revolution (BAU)…. I will be sad to see her go …

              That said… she is a bit long in the tooth so I don’t think I’ll be able to find her a spot in the harem.

              Pronounced ‘Hair-eeeem’

            • hkeithhenson says:

              The long run up to the industrial revolution is a fascinating study. We have fairly good records in the UK, and Gregory Clark (and his assistants) used them to look at the strong genetic selection what went on in a stable agrarian society. It’s what set in DNA our preferences and traits. Humans have somewhat flexible minds, but it’s likely that numeracy and literacy are helped a great deal if you have certain combinations of genes. Anyway, the UK as a whole underwent a selection over at least 20 generations that was as severe as that the Russians applied to the foxes they domesticated into pets. The same applied in other places, Western Europe, China, Japan where there was order most of the time. The result was humans that differ a great deal from hunter-gatherers in psychology, far less impulsive and violent, much more patient about rewards. Google “genetically capitalist” for the article on the UC Davis web server.

              It’s impressive to me that the population as a whole stayed relatively stable, honoring property rights and such during some very rough times. It’s also impressive as to how far away some of the most serious stresses came from. Scientist now know (due to sulfate in ice layers) that the Great Famine of 1315–17 in Europe was the outcome of a huge volcanic eruption. Much of the evidence points to https://en.wikipedia.org/wiki/Mount_Tarawera in New Zealand! The famine set the stage for the Black Death.

              How about that Eddy, you are on the same land mass as the smoking gun. “Historians debate the toll, but it is estimated that 10–25% of the population of many cities and towns died.[2] While the Black Death (1338–1375) would kill more people, it often swept through an area in a matter of months, but the Great Famine lingered for years, drawing out the suffering of the populace.”

              We can endlessly debate if human innovation can get us through the energy crisis. But there is no debate that a volcano will eventually cause a weather upset like those that caused the historical famines. It’s just a matter of time.

            • You may be right. We are not to set up to handle a couple of years (or more) of failing crops.

            • hkeithhenson says:

              “couple of years (or more) of failing crops.”

              I don’t know if there would be anything we could do to mitigate the problems of widespread crop failure, but it could be looked into. It’s an actuarial kind of problem. I think there is enough data in the last few thousand years of historical records plus back 100k years from the ice cores to get a distribution of the size and effects of volcanic eruptions. The weather models may be good enough now to predict how badly eruptions at various places and intensity will screw up weather enough to cause partial or complete crop failures.

              It’s a good reason to consider much of the human race moving off planet. There may be equally bad dangers to living in space, but they should be *independent* of volcanic eruptions.

            • Good luck in living off the planet earth.

              I think one of the issues regarding storing up food for famines on earth is the fact that the food would need to be stored very close to where it is used. Right now, we have a great deal of transport capability. If this disappeared, the food would need to be stored much more locally.

            • hkeithhenson says:

              “Good luck in living off the planet earth.”

              There are no physics reasons that more people could not live off earth than on it. O’Neill’s book, High Frontier goes into the details. Takes a lot of work, but it would keep BAU going for a centuries. Earth is likely become a depopulated backwater. It’s not that stable a place to live.

              “a great deal of transport capability. If this disappeared,”

              Given the continental scale of the damage a volcanic eruption causes to the food supply, losing grain transport would bring back famines.

            • ive got used to breathing while i’ve been on this planet—in fact i rather enjoy doing it—it’s become a regular habit—– you could call me an air junkie, i need a fix every second or two—the addiction has got so bad.

              and then there’s food and water—more habits.

              i need a fix of that several times a day—i know i should go cold turkey on all three—but then i couldnt rant on OFW

            • hkeithhenson says:

              “breathing . . . food and water”

              Norman, don’t you think that solutions to all those problems were were figured out a long time ago? Try here: https://en.wikipedia.org/wiki/Space_colonization Or here: http://www.nss.org/settlement/physicstoday.htm which was my first introduction. Or here: https://en.wikipedia.org/wiki/Gerard_K._O%27Neill#Space_colonization

              There is also a wikiepedia page on the L5 Society.

              As a matter of record, my ex wife and I wrote the first paper on space farming. It is linked off http://www.htyp.org/DTC

            • Fast Eddy says:

              Mad as a hatter.

            • unfair to hatters

            • theuaob says:

              BAU wouldn’t work at all in that context. Any space habitat would have much greater fragility than we experience here on Earth. If activities were governed by the need to generate financial profit and economic growth over ecological sustainability collapse would occur almost instantly.

            • hkeithhenson says:

              “much greater fragility than we experience here on Earth”

              That,s an interesting assertion, especially given the contention on this blog that BAU is about to end and humans will go extinct. I somewhat doubt you are actually interested in bounding the fragility either on Earth or in space, but if you are, then we need to examine what took down previous civilizations, how often they occur and how long we can expect engineering works, such as a space colony to last, and what random risks they face.

              I have been studying Angkor Wat and the civilization that built it recently. It seems to me to be a relatively applicable model. Do you know what took it down?

              There are quite a few engineering works that are over 1000 years old and still standing, some still functional. Can you name some of them?

            • ejhr2015 says:

              Maybe you could ask them?

            • Fast Eddy says:

              If you got caught you were likely to be exiled to Australia…

            • you can’t hoard if you don’t have any money

            • DJ says:

              “if the food now fed to animals were diverted into human food”
              If you eat the soy beans and corn I can eat the beef.

          • DJ says:

            Which book?

    • Bergen Johnson says:

      I still think any kind of decline will be linked to energy. If somehow a transition from FF to renewables or some other way of producing enough net energy to power the world occurs then it’s game still on. The only trouble is if that does happen it will be at the expense of every other living creature larger than a vole on this planet, except of course farm animals that are consumed. Their numbers will continue to rise. I just don’t think we can presume anything. Say for example some invention is developed that makes fusion feasible on a much smaller scale so it can be put into ships, trains, trucks and eventually even cars. With quantum computing and AI both in development there’s no telling what level of technological advancement is possible. The game’s not over until the fat lady sings as they say.

  3. Fast Eddy says:

    These are averages per unit: At $5,125 per unit at GM, there may be some models with $10,000 in incentives and others with none, depending on what GM needs to move at the moment, based on inventories on dealer lots, production, and profit margins (that range from very fat on high-end pickups to very slim on small cars).

    For March, J.D. Power and LMC Automotive pegged incentives at $3,768 per new vehicle sold – the highest ever for any March.

    The prior record for March was achieved in 2009 as the industry was collapsing. In June 2009, GM filed for bankruptcy.



    • Of course, if these companies do succeed in getting more people to buy new cars, they will also trade in their used cars. These used cars seem to be in oversupply as well, so the addition of more used cars will add to the oversupply problem.

    • Greg Machala says:

      Time to roll out Cash For Clunkers V2.0. Surely all those cars purchased back in 2009 (in the C4C program) are all clunkers now. So upgrade folks! And don’t forget to get all those lovely made in China accessories in the parts department before you go.

      • Fast Eddy says:

        Unfortunately there are no clunkers left since even hobos are sleeping in late model Toyota minivans 🙂

        Maybe redefine clunkers as any car more than 2 years old?

    • Brian says:

      Last month I bought the last of the 2016 Nissan Leaf and got close to $20,000 in incentives on a $39,000 (CANADIAN) car. My son had an 1997 Jeep that the turkeys used for a roost, I booted them off and got $6250 incentive for that and I didn’t even own it!

  4. Artleads says:

    I try to figure out how getting money to change hands can be done without direct, major application of energy to supply rotary motion. If money is changing hands apace, and people can buy things from each other, that ought to set society up to be more resilient than if the opposite were the case. Of course energy–fossil energy, I suspect–underlies the ability to have and maintain this lively economic order; it just isn’t the face of it, and dependency on it might well be lessened as a result.

    Following this line of reasoning leads to an economic model for which my background is quite adaptive: tourism. Then I find myself doing an about face on another potential economic model which, until today, I had been downplaying: education. Tourism appeals to curiosity in people. They want to know about some other place than where they are. And the grass seems ever greener on the other side. People are easily led, and have an insatiable appetite for novelty. It might seem at times that people will believe anything they are told, if it’s done persuasiveness enough. In fact, I doubt that we are guided significantly by rationality. This is why tourism can be about anything–broken glass on the street, a pin or needle, a landfill, a coal mine, a holocaust site. It isn’t only about beautiful places or great cultures. Tourism is what you make it.

    Education is something I will need to think more about.

    • DJ says:

      As many as possible should spend as little as possible on essentials, and as few as possible involved in creating these essentials.

      That frees money for spending on tourism, education, hair dressing, personal trainers, entertainment.

    • If a person is a believer in “We pay each other’s wages, so more of anything is better,” then tourism, education, and more medical care are all steps in the right direction. They help create jobs.

      If indeed, the economy as a whole is becoming wealthier and wealthier, and has an increasing amount of surplus energy to spend/waste on these activities, it is all to the good. Or if wages and wealth are getting more and more skewed, then the few rich people can enjoy these activities. The poor people can add debt, and hope to enjoy them too. Debt seems to stimulate the economy, as it becomes an overwhelming burden for those forced to make payments on it, including interest.

      Tourism is sort of OK, although now it seems to be a requirement of educational programs, and sends costs up.

      Education is necessitated by increasing complexity. Increasing education tends to increase wage disparity, since those with education tend to earn more. It used to be that governments paid for education, because pretty much all the education that people needed was through high school. (I understand that in some countries, governments also pay for advanced degrees, even now. Usually the extent of this offer is limited through entrance exams.)

      Young people find themselves in the a trap. They must attend higher education, if they hope to get a reasonable paying job. But if they try this route, many will not succeed, and will be left only with debt. Even if they do finish, many will not earn enough money to repay the debt with interest on their loans. The need for more education is a side-effect of hitting limits.

      I have talked about the problems of medicine before.

      • Artleads says:

        This looks like a case of letting the invisible hand of the market do its work. But that work might be complemented by the volition (program) of any given community. The same amount of surplus energy can have alternate results, can’t it?

        “Debt seems to stimulate the economy, as it becomes an overwhelming burden for those forced to make payments on it, including interest.”

        Is this consistent with JT Roberts’ quote?: “Money was the product of economic activity not the cause of it.” The activity required to pay back debt stimulates the economy?

        “Tourism is sort of OK, although now it seems to be a requirement of educational programs, and sends costs up.”

        I’m not sure why it has to send costs up. It costs more to approach it piecemeal, while it saves costs to approach it synergistically (see below) along with health care, community development and tourism. I doubt that it is beneficial in other than minor ways to tie education with the economic aspects of tourism, since the money aspect can skew other aspects of education. But some basic attention to it seems warranted, especially if a line is projected for now to when money no longer applies/exists.

        “Education is necessitated by increasing complexity. Increasing education tends to increase wage disparity, since those with education tend to earn more. It used to be that governments paid for education, because pretty much all the education that people needed was through high school. (I understand that in some countries, governments also pay for advanced degrees, even now. Usually the extent of this offer is limited through entrance exams.)”

        Well yes. We have a global economic order that can’t be dispensed with. It’s absence means collapse, and there is nothing to take its place (although there needs to be).

        “Young people find themselves in the a trap. They must attend higher education, if they hope to get a reasonable paying job. But if they try this route, many will not succeed, and will be left only with debt. Even if they do finish, many will not earn enough money to repay the debt with interest on their loans. The need for more education is a side-effect of hitting limits.”

        I think the trap of education is made more severe if there is only one economic project (the globally networked JIT one), to the near exclusion of a parallel “community oriented” economic system. Since AI is taking over so much of the global economy, resulting in growing un- and under-employment, shouldn’t it make sense to create work in a parallel community oriented economy for the un- and under-employed? The only reason I can see for the latter not to be developing adequately is that no one thinks it’s needed, or that the JIT one will crash rather soon. And also inertia.

        If a parallel, alternative economy that promotes economic growth were possible, what would be its components?

        Let’s say a parallel cluster of economic programs were considered, it seems to me they would use energy and money to a) grow the alternate economic system, b) create a functioning link with the global mainstream economy (the one that management of nuclear materials might depend on?), and c) move progressively toward a parallel/alternate economic system that is increasingly independent of centralized energy and money.

        PHASE I OF TRANSITION: (No other phase appears to be imaginable without this one first succeeding)

        – Tourism, education, preventative (alternative) health care as community development
        – Tourism, education, preventative (alternative) health care converge synergistically

        What happens when you use education to gain expertise for running the local community? More kids building houses, learning the water system, growing food, noting the successes and failures of various community members’ approaches, participating with health care, explication of community qualities that will interest and connect with tourists (who might occasionally be kids from other places)

        Education as a synergistic system

        Health care as a synergistic system (not a great link, and seems to be behind a paywall)

        If the possibility for an alternate (not alternative) economy depends on surplus from the mainstream global economy, can’t much of this “waste” go to exchanging this surplus (like in trade) maximally?

        Big infrastructure projects seem to promote an inequitable economic order, and waste energy rather than recirculate it maximally. Community-oriented/human-scale economy can tie in to “popular”employment and economic needs. One is inequitable and the other is equitable. Inequitable is heavy on debt which wastes more and is more unstable.
        So the question is whether the following can also work synergistically: Economics through the dominant global financial system, and economics through local “exchange”.

        Question: Do humans waste so as to outcomplete adversarial circumstances? And are those adversarial circumstances only perceived to be such, or are they necessarily adversarial?

        Quote on (KRQE) CBS news today. “People don’t only want to see different thing; they want to see things differently.”

      • MG says:

        If there is enough well-to-do tourists, we do not have Uber or Airbnb. Uber and Airbnb are side effects of the decreasing affordability.

        • Artleads says:

          MG, I didn’t understand this. Can you make it clearer?

        • Artleads says:

          My very historic (but not publicly realized as such) birthplace faces the prospect of a chain of hotels that I fear will ruin what’s left of its real character. Hotels nearby and in that geographic zone have indeed destroyed the character of places without the public ever having grown to see them as valuable. A dominant system of gross inequality seems only to have led to a way of thinking that has only increased inequality. Places that were wholesome and fresh (albeit plagued by classism and inequality), when I was a youth, recently had seemed squalid, like choking festering ghettos (even if everybody had a cell phone). The tourism that started in the 50’s seems to have been consistent with this massive degeneration, population explosion and shabbiness. Buildings still left standing from the past have had their fine architectural features massacred.

          This appears largely to be the legacy of the foreign, big-money, corporate tourist industry.

          Airbnb caters to a different kind of tourism, since it capitalizes on existing homes, small scale, and local benefit. I would be interested in pursuing (conceptually) a rethinking of tourism based on an Airbnb model. It does have the downside, however, of not being able to accommodate the cruise ship type mass market. OTOH, what if every shabby shack were given assistance to upgrade just enough to qualify as some weird, new, shabby chic type of tourist destination?

          It hit me just now that everyone reading this is living in a tourist setting, since every place is (inherently) unique. Every single setting in the world has a unique story that can be spun to attract the still-wealthy-enough tourist class. It would require a major revolution in preservation, design and refurbishment work…on a scale never before imagined. But the materials involved would mostly be “found” or “repurposed” from the local community…

          Uber is something else again. I don’t know how that applies to tourism.


          The revolutionary every-home-is-an-airbnb model for economic transaction might address what Norman says here:

          “the ‘money changing’ theory is what motivates the majority into thinking that the more money changes hands, and faster, the richer everyone gets. A minority do get richer of course, but the majority get left behind for one reason or another.”

          • MG says:

            I meant As there is enough well-to-do tourists, we have Uber or Airbnb. The hotels have problem…

            • MG says:

              “…as there is not enough…” sorry.

            • Artleads says:

              “As many as possible should spend as little as possible on essentials, and as few as possible involved in creating these essentials.”

              I’ll meditate on this.

            • Artleads says:

              So how do you see the folloeing?

              “Airbnb caters to a different kind of tourism, since it capitalizes on existing homes, small scale, and local benefit. I would be interested in pursuing (conceptually) a rethinking of tourism based on an Airbnb model. It does have the downside, however, of not being able to accommodate the cruise ship type mass market. OTOH, what if every shabby shack were given assistance to upgrade just enough to qualify as some weird, new, shabby chic type of tourist destination?”

              What about the large scale, mass-market tourism that hotels cater to?

    • the ”money changing” theory is what motivates the majority into thinking that the more money changes hands, and faster, the richer everyone gets. A minority do get richer of course, but the majority get left behind for one reason or another.

      that same majority reject the nasty reality, (and you read it on OFW first folks) that my explosive force into rotary motion law controls who and what we are, in respect to our current era. And nobody can escape it, unless you’re a bare-subsistence farmer/herdsman taking/expecting nothing from outside forces. such people are in such insignificant numbers that they can be disregarded in this discussion.

      dependency will continue past the last moment–after which will come panic, denial, violence—you name it.

      When the fossil fuels are no longer available, then, if we’re lucky we will go back to a horse and cart at best
      If we’re unlucky—you can name your own scenario.

  5. Fast Eddy says:

    Manhattan landlords, who have seen retail occupancy plummet after boosting rents to record levels, are trying to avoid big price cuts. Instead, they’re writing checks for things like interior redesigns and moving expenses to keep storefronts from going empty.

    Tenant-improvement allowances haven’t been typical in the Manhattan retail market. But now the concessions, which can pay for anything from lighting and displays to a complete overhaul, are becoming a key component in some new leases, particularly for large, flagship stores in high-profile areas, such as Madison Avenue and Fifth Avenue, according to Steve Soutendijk, an executive director at brokerage Cushman & Wakefield Inc.

    “We’re seeing tenant-improvement and concession packages that retail landlords never, ever contemplated before,” he said.


  6. /var/folders/2z/td60lz0r8xl8b_0052grqncr0000gq/T/com.apple.mail/com.apple.mail.drag/Unknown-1000.jpeg

    a perfect cartoon for OF Worldsters

    Caption reads—All we talk about these days is plagues

  7. Fast Eddy says:

    These will be some of the first to die when BAU goes down…

    She has four staff for her London home, including a live-in housekeeper, gets chauffeured everywhere (neither she nor Sol can drive), and, of course, she has a wardrobe to die for.


    • Apparently you have never served the rich.I have.

      These staff will be loyal to her since they know their survival depends upon her. They will whisk her and her rich hubby, lead them to the private airport, and hopefully one or two will make it into their private airplane to escape.

      Upper class people often awe lower class people with their ‘signs’. That’s how Tom Buchanan managed the Wilson guy to kill Gatsby, and also how the Duke of Mantova in Rigoletto managed to escape death by impressing his assassin.

      • Fast Eddy says:

        ‘These staff will be loyal to her since they know their survival depends upon her’

        When BAU collapses the rich will no longer be rich. They will have nothing to offer to their servants and minions. And the fake loyalty will turn to disdain when the master cannot pay them and they cannot buy food because they have no money.

        Is it Empire of the Sun where the war hits… and the British kid is treated rather badly when the servants realize the master is no longer the master?

        A white face will be a bad thing in a lot of places around the world post BAU … we have treated the locals rather badly over the years… and there will be many who see the collapse as an opportunity for payback….

        It’s one reason I left Bali — without a doubt there are those who resent the foreign presence… 300 years under the brutal colonial yoke are not forgotten…

        • I am sure the boy in the Empire of the Sun would have managed to punish his former servants after the japanese was defeated.

          The English, and especially the Australians,, did not forgive the Korean POW guards who tormented them during World War 2 .

          For one who hates a roundeye, there is another, usually a woman, who is awed by them.

          • Fast Eddy says:

            Oh yes … most definitely … living as a round eye in Asia gives one a glimpse into the world of what it is like to be Brad Pitt…. ‘Being Brad Pitt’

            • Yorchichan says:

              When I spent a month in Fukuoka, Japan in 1989 I could walk around all day and never see another white face. I used to dread walking past a school because I knew once the cry of “gaijin” went up all the kids would run over to the fence to get a closer look. In a bar a girl said meeting me was the most exciting day of her life. Closest I ever came to feeling like a movie star!

              Does this still happen, Tim?

            • Fast Eddy says:

              Roppongi: Gas Panic Bar …. back in the day….

    • Greg Machala says:

      Dumber than yeast!

  8. JT Roberts says:

    It important to dispel the myth that money is the economy. Economic prosperity is built on personal productivity not wealth transfers. The world in general is completely deceived into believing that wealth is the accumulation of money. This is not the case. Wealth is the accumulation of the means of production. Wall Street understands this but people do not. The circulation of currency has no value in itself. As a matter of fact the higher the number of exchanges the greater the taxation. So the net value shrinks without a means of production creating surplus value.

    16th century Spain collapsed with hordes of gold in their possession. What they failed to realize is the quest for gold was the reason for their success. It drove the economic system forward through productivity. As the gold accumulated the pace of acquisition diminished and the economy failed.

    In the end economy is nothing more or less than the movement of energy. Richardo knew that. The Physiocrates knew that. Marx knew that. Yellen doesn’t know that. Central banks think they control economy they do not. Money was the product of economic activity not the cause of it.

    Is everyone insane?

    • Bergen Johnson says:

      “Wealth is the accumulation of the means of production.”

      So much for my vintage baseball card PSA graded collection.

    • Van Kent says:

      “Is everyone insane?”

      I’ll give you the Norman Pagett answer to that question.

      – Yes

    • timl2k11 says:

      “Is everyone insane?”
      Me: (looks around at the world) Yep!
      It’s all about indoctrination.
      I’ll repeat my favorite quote:
      “For those who stubbornly seek freedom, there can be no more urgent task than to come to understand the mechanisms and practices of indoctrination. These are easy to perceive in the totalitarian societies, much less so in the system of ‘brainwashing under freedom’ to which we are subjected and which all too often we serve as willing or unwitting instruments.”
      – Noam Chomsky

      • wealth is a measure of energy availability, and subsequently the means by which that energy is used to produce and sell ‘stuff’.

        hence Rockefeller became the most wealthy man in modern history, while Ford, Carnegie et al used what he produced to build and sell their own products and also became very rich, the line is unbroken between them and us.

        Rockefeller and others like him came to “own” what was effectively ‘global’ capital, and thus drove the capitalist system into the mess we are in today—the incessant drive towards getting hold of as much fuel as possible and burning it as fast as possible, convinced it will go on forever.

    • Not sure this is historically accurate, since large part of the demise of Spain was imperial overreach, simultaneously waging many wars around the globe and supporting various proxy regimes in Europe, sometimes in pretty far away places etc. This was enormous drain on the treasury.

      If we tweak the argument more towards misallocation, bad management (not investing in long term productivity or poorly performing on that goal) and bad luck, incl. not viable geo strategic position to influence wider European politics from their southern corner, this would be more realistic overview.

      • If Spain did what the British did to the Boers, it would have not declined.

        • much of the spanish problem was because their economy was gold based.

          therefore when they started looting the incas etc they deluded themselves that more gold would increase wealth–it didn’t it, destabilised the existing ‘economy’ by devaluing gold itself

        • Fast Eddy says:

          This a really good documentary on the Boer War… when faced with losing the Brits tore a page out of the Irish handbook and burned the Boer farms and relocating their families to concentration camps… resulting in starvation….

          ‘Whatever it takes’…. is not a new concept

      • xabier says:

        By the 17th century in Spain the economy produced almost nothing beyond subsistence agriculture, added no value, and it was socially preferable not to do any useful work: a society of peasants, parasitic monks, nuns and priests, (think of the mullahs in Iran today), soldiers, lawyers and nobles, servants, merchants and whores.

        But almost no artisans and engineers – the best were imported from abroad, and basic everyday items also came from further north.

        The Church also crushed all scientific thought and experiment, mathematics, physics, natural philosophy, in favour of an imbecilic theology which buttressed the rule of the parasitic clergy.

        The privilege of world empire made this ridiculous state of affairs last far longer than it otherwise should have.

  9. JT Roberts says:

    The events of the 1590s had suddenly brought home to more thoughtful Castilians the harsh truth about their native land – its poverty in the midst of riches, its power that had shown itself impotent… For this was not only a time of crisis, but a time also of the awareness of crisis – of a bitter realization that things had gone wrong. It was under the influence of the arbitristas that early seventeenth-century Castile surrendered itself to an orgy of national introspection, desperately attempting to discover at what point reality had been exchanged for illusion….

    The arbitristas proposed that Government expenditure should be slashed…

    Most of the arbitristas recommended the reduction of schools and convents and the clearing of the Court as the solution to the problem. Yet this was really to mistake the symptoms for the cause. MartínGonzález de Cellorigo was almost alone in appreciating that the fundamental problem lay not so much in heavy spending by Crown and upper classes – since this spending itself created a valuable demand for goods and services – as in the disproportion between expenditure and investment. ‘Money is not true wealth,’ he wrote, and his concern was to increase the national wealth by increasing the nation’s productive capacity rather than its stock of precious metals. This could only be achieved by investing more money in agricultural and industrial development. At present, surplus wealth was being unproductively invested – ‘dissipated on thin air – on papers, contracts, censos, and letters of exchange, on cash, and silver, and gold – instead of being expended on things that yield profits and attract riches from outside to augment the riches within. And thus there is no money, gold, or silver in Spain because there is so much; and it is not rich, because of all its riches….’

    The Castile of González de Cellorigo was…a society in which both money and labour were misapplied; an unbalanced, top-heavy society, in which, according to González, there were thirty parasites for every one man who did an honestday’s work; a society with a false sense of values, which mistook the shadow for substance, and substance for the shadow.

    J.H. Elliott, Imperial Spain: 1469-1716

  10. jerry says:

    Lets interject a little good news here shall we.

    Divine intervention? Yeah, by way of what or who rather children which is of course just so typical of Christ. Watch these videos and reflect a little about what really matters.

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