Falling interest rates have huge power. My background is as an actuary, so I am very much aware of the great power of interest rates. But a lot of people are not aware of this power, including, I suspect, some of the people making today’s decisions to raise interest rates. Similar people want to sell securities now being held by the Federal Reserve and by other central banks. This would further ramp up interest rates. With high interest rates, practically nothing that is bought using credit is affordable. This is frightening.
Another group of people who don’t understand the power of interest rates is the group of people who put together the Peak Oil story. In my opinion, the story of finite resources, including oil, is true. But the way the problem manifests itself is quite different from what Peak Oilers have imagined because the economy is far more complex than the Hubbert Model assumes. One big piece that has been left out of the Hubbert Model is the impact of changing interest rates. When interest rates fall, this tends to allow oil prices to rise, and thus allows increased production. This postpones the Peak Oil crisis, but makes the ultimate crisis worse.
The new crisis can be expected to be “Peak Economy” instead of Peak Oil. Peak Economy is likely to have a far different shape than Peak Oil–a much sharper downturn. It is likely to affect many aspects of the economy at once. The financial system will be especially affected. We will have gluts of all energy products, because no energy product will be affordable to consumers at a price that is profitable to producers. Grid electricity is likely to fail at essentially the same time as other parts of the system.
Interest rates are very important in determining when we hit “Peak Economy.” As I will explain in this article, falling interest rates between 1981 and 2014 are one of the things that allowed Peak Oil to be postponed for many years.
Figure 1. 10-year Treasury Interest Rates. Chart prepared by St. Louis Fed.
These falling interest rates allowed oil prices to be much higher than they otherwise would have been, and thus allowed far more oil to be extracted than would otherwise have been the case.
Since mid 2014, the big change that has taken place was the elimination of Quantitative Easing (QE) by the US. This change had the effect of disrupting the “carry trade” in US dollars (borrowing in US dollars and purchasing investments, often debt with a slightly higher yield, in another currency).
Figure 2. At this point, oil prices are both too high for many would-be consumers and too low for producers.
As a result, the US dollar rose, relative to other currencies. This tended to send oil prices to a level that is too low for oil producers to make an adequate profit (Figure 2). In addition, governments of oil exporting countries (such as Venezuela, Nigeria, and Saudi Arabia) cannot collect adequate taxes. This kind of problem does not lead to immediate collapse. Instead, it “sets the wheels in motion,” leading to collapse. This is a major reason why “Peak Economy” seems to be ahead, even if no one attempts to raise interest rates.
The problem is not yet very visible, because oil prices that are too low for producers are favorable for importers of oil, such as the US and Europe. Our economy actually functions better with these low oil prices. Unfortunately, this situation is not sustainable. In fact, rising interest rates are likely to make the situation much worse, quickly.
In this post, I will explain more details relating to these problems.
Low interest rates are extremely beneficial to the economy; high interest rates are a huge problem.
Low interest rates allow consumers to purchase high-priced goods with affordable monthly payments. With low interest rates, consumers can afford to buy more consumer goods (such as homes and cars) than they could otherwise. Thus, low interest rates tend to lead to high demand for commodities of all kinds, thus raising the price of commodities, such as oil.
Low interest rates are also good for businesses and governments. Their borrowing costs are favorable. Because consumers are doing well, business revenues and tax revenues tend to grow at a brisk pace. It becomes easier to afford new factories, roads, and schools.
While low interest rates are good, a reduction in interest rates is even better.
A reduction in interest rates tends to make asset prices rise. The reason this happens is because if someone already owns an asset (examples: a home, factory, a business, shares of stock) and interest rates fall, that asset suddenly becomes more affordable to other people, so the price of that asset rises because of increased demand. For example, if the monthly mortgage payment for a house suddenly drops from $600 per month to $500 per month because of a reduction in interest rates, many more potential homeowners can afford to buy the house. The price of the house may be bid up to a new higher level–perhaps to a price level where the monthly payment is $550 per month–higher than previously, but still below the old payment amount.
Furthermore, if interest rates fall, owners of homes that have risen in value can refinance their mortgages and obtain the new lower interest rate. Often, they can withdraw the “excess equity” and spend it on something else, such as a new car or home improvements. This extra spending tends to stimulate the economy, and thus tends to raise commodity prices. Suddenly, investments in oil fields that previously looked too expensive to extract, and mines with ores of very low grade, start looking profitable. Businesses hire workers to staff the investments that are now profitable, stimulating the economy.
Businesses receive other benefits, as well, when interest rates fall. Their borrowing cost on new loans falls, making new investment more affordable. Demand for their products tends to rise. The additional demand that results from lower interest rates allows economies of scale to work their magic, and thus allows profits to rise.
Companies that have large portfolios of investments, such as insurance companies and pension funds, find that the values of their assets (stocks, bonds, and other investments) rise when interest rates fall. Thus, their balance sheets look better. (Of course, the low interest payments when interest rates are low provide a different problem for these companies. Here, we are talking about the impact of falling interest rates.)
Of course, the reverse of all of these things is also true. It is truly bad news when interest rates rise!
Wages Depend on Interest Rates and Debt Growth
When interest rates fall, debt levels tend to rise. This happens because expensive goods such as homes, cars, and factories become more affordable, so customers can buy more of them. Thus, falling interest rates are very closely associated with rising debt levels.
We find that when we look at debt levels, rising debt levels seem to be highly correlated with rising US per capita wages, (especially up until China joined the World Trade Organization in 2001, and globalization took off). “Per capita wages” are calculated by dividing total wages and salaries by total population. Per capita wages thus reflect the impact of both (a) changes in the wages of individual workers and (b) changes in workforce participation. Using this measure “makes sense,” if we think of the total population as being supported by the wages of the working population, either directly or indirectly (such as through taxes).
Figure 3. Growth in US Wages vs. Growth in Non-Financial Debt. Wages from US Bureau of Economics “Wages and Salaries.” Non-Financial Debt is discontinued series from St. Louis Federal Reserve. (Note chart does not show a value for 2016.) Both sets of numbers have been adjusted for growth in US population and for growth in CPI Urban.
What does oil price depend upon?
Oil price depends upon the amount customers can afford to pay for oil and the finished products it produces. The amount customers can afford, in turn, depends very much on interest rates, since these influence both wages and monthly payments on loans. If the price that a significant share of consumers can afford is below the selling price of oil, we get an oil glut, as we have today.
It is important to note that oil and other energy products are important in determining the cost of finished products, such as cars, homes, and factories. Thus, high prices on energy products tend to ripple through the economy in many different ways. Many people consider only the change in the cost of filling a car’s gasoline tank; this approach gives a misleading impression of the impact of oil prices.
Affordability is also affected by growing wage disparity. Growing wage disparity tends to occur because of growing complexity and specialization. Globalization also contributes to wage disparity. These are other problems we encounter as we approach energy limits. Demand for commodities is to a significant extent determined by the wages of non-elite workers because there are so many of them. High wage workers tend to influence commodity prices less because their purchases are skewed toward a greater share of services, and toward the purchase of financial assets.
Because interest rates, debt, wages, and oil prices (and, in fact, commodity prices of all kinds) are linked, the system is much more complex than what most early modelers assumed was the case.
Hubbert’s Theory Underlies Many Mainstream Energy Beliefs
Today’s mainstream beliefs about our energy problems seem to be strongly influenced by Peak Oil theory. Peak Oil theory, in turn, is based on an analysis by geophysicist M. King Hubbert. This view does not consider interest rates, debt, or prices.
Figure 4. M. King Hubbert’s symmetric curve explaining the way he saw resources depleting from Nuclear Energy and the Fossil Fuels, published in 1956.
In this view, the amount of any exhaustible resource that we can extract depends on the resources in the ground, plus the technology we have to extract these resources. In general, Hubbert expected an approximately symmetric curve of extraction, as illustrated in Figure 4. The peak is expected when about 50% of the resource is extracted. Hubbert believed that improved technology might allow more exhaustible resources to be extracted after peak, making the actual extraction pattern somewhat asymmetric, with a larger share of a resource, such as oil, being extracted after peak.
With this theory, we can expect to extract a considerable amount of resources in the future, even if the energy supply of a particular type starts to fall, because it is “past peak.” With the relatively slow decline rate shown in Figure 4, it should be possible to “stretch” supplies for some years, especially if technology continues to improve.
At some point, the standard view is that we will “run out” of energy supplies if we don’t make substitutions or conserve the use of these nonrenewable resources. Thus, an increase in efficiency is viewed as one part of the solution. Another part of the solution is viewed as substitution, such as with wind and solar energy.
In the mainstream view, the major influence on commodity prices is scarcity, not affordability. The expectation is that scarcity will cause oil prices will rise; as a result, expensive substitutes will become cost competitive. The higher prices will also encourage more conservation and more high-cost technologies. In theory, these can keep the economy operating for a very long time. The very inadequate models that economists have developed have encouraged these views.
The Usual Energy Model Is Overly Simple
Hubbert assumed that the amount of oil extracted would depend only upon the amount of resources available and available technologies. In fact, the amount of oil extracted depends on price, in part because price determines which technologies can be used. It also governs whether oil can be extracted in areas that are inherently expensive–for example, deep under the sea, or heavily polluted with some other material that must be removed at significant cost. Because of this, if oil prices are high, new technologies can be brought into play, and resources that are expensive to reach can be pursued.
If oil prices are lower than really needed, for example in the $40 to $80 per barrel range, the situation is more complex. The problem is that taxes on oil are important, especially for oil exporters. In this range, many producers can continue to produce, but their governments collect inadequate taxes. Their governments find it necessary to borrow money to maintain programs upon which the populations of the countries depend. Governments with inadequate tax revenue tend to get into more conflicts with other countries, such as is happening today with other Middle Eastern countries fighting with Qatar.
The situation of inadequate tax revenue is inherently unstable. It can eventually be expected to lead to the collapse of oil exporting countries.
Factors Underlying the Rise and Fall of Historical Oil Prices
The fundamental problem regarding the cost of resource extraction is that we tend to extract the cheapest-to-extract resources first. Thus, the cost of extracting many types of resources, including oil, tends to rise over time. Wages grow much more slowly.
Figure 5. Average per capita wages computed by dividing total “Wages and Salaries” as reported by US BEA by total US population, and adjusting to 2016 price level using CPI-Urban. Average inflation adjusted oil price is based primarily on Brent oil historical oil price as reported by BP, also adjusted by CPI-urban to 2016 price level.
This mismatch between wages and oil price tends to cause increasing affordability problems over time, even as we switch to cheaper fuels and increased efficiency. Part of the reason why affordability problems get worse has to do with our inability to keep reducing interest rates; at some point, they reach an irreducible minimum. Also, as I mentioned previously, there is a growing wage disparity problem caused by growing complexity and globalization. Those with low wages find themselves increasingly unable to afford goods such as homes and cars that require oil products in their construction and use.
Looking at Figure 5, we see two major price “humps.” The first of these is in the 1970-1998 period, and the second is in the 1999 to present period. In the first of these two periods, we often hear that the run up in oil prices was the result of an oil supply problem. This occurred because the US oil supply peaked in 1970, and the Arabs made the situation worse with an oil embargo.
In fact, I think that at least half of the problem in the 1970-1981 period may have been that wages were growing rapidly during this period. The rapid run up in wages allowed oil prices to increase in response to a fairly small oil shortage. Thus, the run up in prices was caused to a significant extent by greater demand, made possible by greater affordability. Note that timing of wage increases is slightly ahead of the timing of increases in CPI Urban. This suggests that wage growth tends to cause price inflation. It seems likely that globalization reduces the influence of US wages on oil prices, and thus on price inflation, in recent years.
Figure 6. Growth in US wages versus increase in CPI Urban. Wages are total “Wages and Salaries” from US Bureau of Economic Analysis. CPI-Urban is from US Bureau of Labor Statistics.
The large increases in wage payments shown in Figure 6 were made possible by growing total population, by rapidly growing productivity, and by an increasing share of women being added to the workforce. Figure 6 shows that the big increases in wages stopped after interest rates were raised to a very high level in 1981.
Economists hope that rising oil prices will bring about new supply, substitution, and greater efficiency. In the 1970s and 1980s, oil prices did seem to come back down for precisely these reasons. I explain the situation in more detail in the Appendix. Rising inflation rates and interest rates were a problem during this period for insurance companies. One insurance company I worked for went bankrupt; another almost did.
We have not been able to achieve the same new supply–substitution–efficiency result in the 1999 to 2016 period, partly because whatever easy efficiency and substitution changes could inexpensively be made were made earlier, and partly because we are reaching diminishing returns with respect to extracting energy products, especially oil. Also, the wage disparity of workers is growing. Growing wage disparity makes debt growth increasingly ineffective in raising wages. Instead of debt growth funding more wages and more affordable goods for the working poor, the additional debt seems to go to the already rich.
The decreases in interest rates since 1981 have given the economy an almost continuous upward lift. This long-term decrease tends to get overlooked because it has gone on for such a long time. The major exception to the long-term decrease in interest rates since 1981 was the big increase by the Federal Reserve in target interest rates in the 2004-2006 period (shown indirectly in Figure 7).
Figure 7. Three-month treasury rates. Graph prepared by the St. Louis Fed.
The problem started when Alan Greenspan dropped target interest rates very low in the 2001-2004 period to stimulate the economy, and then raised them in the 2004-2006 period to cut back growth (Figure 7). This seems to have been one of the major causes of the Great Recession. The other major cause of the Great Recession was fact that oil prices rose far more rapidly than wages during the 2003-2008 period. More information is provided in the Appendix.
Where We Are Now
We have many leaders who do not seem to understand what our real problems are, and how successful programs have been to date in keeping the system from crashing. Way too much of their understanding has come from traditional models regarding “land, labor and capital,” “supply and demand,” and “higher prices bring substitution.” These models are not suitable for understanding how the economy, as a self-organized networked system, really works.
These leaders seem to believe that QE worldwide is no longer working well enough, so it should be removed. In addition, securities currently held by central banks should be sold. Also, the growth in debt should be slowed, because it is getting too high. Whether or not debt is too high, this strategy will lead to “Peak Economy.” As I explained in an earlier post, debt is what pulls an economy forward. It is the promise (which may or may not actually be kept) of future goods and services. These goods will be made with energy resources and other resources that we may or may not actually have in the future. Once we pare back our expectations, the system is likely to spiral downward.
It is not entirely clear the extent to which interest rates have already started to influence the economy. Long term interest rates, such as 10 year Treasuries, have not yet changed in yield (Exhibit 1). But short-term interest rates clearly have increased (Figure 7). An increase from 0% to 1% is a huge increase, if someone is using very short-term interest rates to fund highly levered investments.
Worldwide, the International Institute of Finance reported an increase in debt of $70 trillion, to $215 trillion between 2006 and 2016. This sounds like a huge increase, but it only amounts to a 4.0% increase per year during that period. It is doubtful this is enough to support the GDP growth the world needs, plus the increase in commodity prices demanded by diminishing returns.
There is evidence the economy is already headed downward. A recent report indicates that in the US, the smallest increase in consumer credit in 6 years took place in April 2017.
Another worrying area is auto loans. This is an area where interest rates have already begun to increase a bit, making monthly payments on cars higher.
Figure 8. Finance rate on 48-month new car loans through February 2017. Chart by St. Louis Fed.
The average finance rate in February 2017 was 4.52%, compared to an average finance rate of 4.00% in November 2015 (the low point). We don’t yet have information on what the increase would be to May 2017. A person would expect that if finance rates are following the interest rates on short to medium term US government securities, the finance rate would continue to rise. This interest rate rise would be one of the things that discounts provided by auto dealers would act to offset.
Because of the higher cost to the buyer of rising auto financing rates, a person would expect such a rise to adversely affect new auto sales. Higher interest rates would also affect lease prices and auto resale prices. We don’t yet know the extent to which higher interest rates are currently affecting auto sales, but the kinds of changes we are seeing are precisely the kinds of changes we would expect to see from higher interest rates. We have had a long history of falling interest rates (plus longer maturities) helping to prop up auto sales. Simply getting to the end of this cycle could be part of the problem.
Peak Economy is likely not very far away. We do not need to encourage it, by raising interest rates and selling securities held by the Federal Reserve. We badly need more people to understand the connection between interest rates and oil prices, and how important it is that interest rates not rise–in fact, more QE would be better.
Appendix – More Detail on Changes Affecting Oil Prices
(a) Between 1973 and 1981. Our oil problems started when US oil production began to decline in 1970, and Arab countries took advantage of our problems with an oil embargo. We immediately started work on extracting oil from other locations that we knew had oil available (Alaska, North Sea, and Mexico). Also, Japan was already making smaller cars. We started building smaller, more fuel-efficient cars in the US, too. We also began to substitute other fuels for oil in home heating and in the making of electricity.
(b) Between 1981 and 1998. In 1981, Paul Volker decided to force oil prices down by raising target interest rates to a very high level. He knew that such a high interest rate would lead to recession, which would reduce demand and thus prices. Also, earlier efforts at new oil supply and demand reduction approaches began to be effective. The new oil supply was somewhat higher priced than the pre-1970 oil. Falling interest rates made it possible for consumers to tolerate the somewhat higher oil prices required by the new higher priced oil.
(c) Between 1999 and 2008. Oil prices rose rapidly during this period, in large part because of rising demand. Globalization added huge demand for oil. Also, Alan Greenspan reduced target interest rates at about the time of the 2001 recession. (Target interest rates affect 3-month interest rates, shown in Figure 7.) At the same time, banks were encouraged to be more lenient in lending standards, and to offer loans based on the very favorable short-term interest rates available at that time. This combination of factors led to rapidly rising housing debt and much refinancing activity. All of this activity also added to oil demand.
Fortunately, these demand increases coincided with an increase in the cost of oil extraction. The world’s supply of “conventional oil” was becoming limited in supply, and began to decline in 2005. The higher demand raised prices, thus encouraging producers to pursue more expensive unconventional oil production.
(d) The 2008 Crash occurred after the Federal Reserve raised target interest rates in the 2004-2006 period, in an attempt to damp down rising food and energy prices. This interest rate rise made home buying more expensive. Oil prices were also increasing in the 2002-2008 period. The combination of rising interest rates and rising oil prices reduced demand for new homes and cars. Home prices fell, debt levels fell, and oil prices fell. Many people blamed the problems on loose mortgage underwriting standards, but the basic issue was falling affordability of oil, as oil prices rose and as higher interest rates took away the huge boost the economy previously had received. See my article, Oil Supply Limits and the Continuing Financial Crisis.
(e) 2009-2011 ramp up in prices was enabled by QE. This QE brought a broad range of interest rates to very low levels.
(f) 2011-2014. Oil prices gradually slid downward, because there was no longer enough upward “push” created by QE, since interest rates were no longer falling very much.
(g) Mid to late 2014 to Present. The US removed its QE, leading to a sharp reduction in carry trade in US dollars. Many currencies fell relative to the US dollar, making oil products less affordable in these currencies. As a result, oil prices fell to a level far below that needed by oil producers, especially oil exporters.
What a laugh reading the clueless comments of zerohedge posters every time Gail writes an article…these guys are in for a BIG surprise when this thing blows up…I can just picture them: “But, but, but my gold coins”….just stick them where the sun don’t shine morons….
Don’t worry, crypto-currencies will save us! /sarc
Big Malakes on that website re psile, with a capital M!!!
Yeah, I don’t get it, given the quality of the average post. ZH seems to attract a lot of libertarians & other knuckle-draggers.
Good old Steve has got it all wrong … he’s pushing gold and silver… which have stagnated for years…
He needs to change his tune —- he’s missing the boat on cryptocurrencies…
Maybe he is thinking about it….
https://srsroccoreport.com/crypto-currency-cloakcoin-up-300-in-two-days/
Don’t see any cryptos in here. Oh wait, they’re invisible. lol
https://www.newyorkfed.org/aboutthefed/goldvault.html
I have an idea — I will invent a new form of money. Let’s call it Bong. You guys get the chance to get in on the ground floor — you can buy 1 Bong for USD100. http://www.buybongNOW.com ….
Now that the seed is planted I will hire http://www.edelman.com/ and pay them a LOT of money (they don’t take Bong… apparently) …. to spread the news of the Bong far and wide… to tell the cattle that they NEED to buy Bong now because they will get rich.
And being the whore that the MSM is …. it will embrace Edelman … publish whatever Edelman feeds it …. so long as Edelman pays them a LOT of money.
And because the cattle does not question the MSM — a great number of them Buy Bong Now…. and this inflates the price of bong so it takes $3000 real dollars to buy one Bong….
And the cattle tell their friends and family to Buy Bong Now… and the MSM SCREAMS Bong now $3000 — experts see $10,000 buy the end of the year….
And so on…. forever and ever …. (not)
Meanwhile as the originator of Bong — I am spending the real $ as fast as they come in (because I know it will not last) — I am buying up stocks and bonds and gold … I have 3 private jets — a very LARGE harem …etc…
And then it occurs to me — this is almost what it would feel like to be one of the owners of the Fed.
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This may be even worse Dozens of new cracks discovered at Belgian nuclear reactors
https://www.rt.com/news/391826-belgium-nuclear-reactor-cracks/
This is terribly (in all senses of the word) informative. You wouldn’t be a Larouchian by any chance? Either way I see major parallels with his message, never mind what he’s supposed to have done. https://larouchepac.com/20170501/greater-financial-collapse-looms-2017-glass-steagall-must-be-restored-stop-it
I stopped reading here
Greater Financial Collapse Looms in 2017; Glass-Steagall Must Be Restored To Stop It
I don’t see that restoring Glass Steagall will solve our problems. Our problems are with energy products (not cheap enough) and with debt (not growing fast enough to cover up our energy problems).
debt ceiling. lol
Just what we need to create collapse!
Haynes and Boone has tracked 123 North American oil and gas producers that have filed for bankruptcy since the beginning of 2015.
http://www.haynesboone.com/publications/energy-bankruptcy-monitors-and-surveys
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Shale production may soon hit a wall
http://www.foxbusiness.com/markets/2017/06/09/shale-production-may-soon-hit-wall.html
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‘I am very much aware of the great power of interest rates’
Who has the power to control interest rates?
Ah yes… the Fed… a privately owned company…. how wonderful to be one of the owners of the Fed!!! What great power one would have if only one could be made a partner in this enterprise
Speaking of this private business… we have heard that the float of Aramco would be the largest ever….
Not even close.
The Fed and it’s franchises have bought up tens of trillions of stocks and bonds… with money conjured out of nowhere… and if they keep going at this pace they will own every bond and every stock on the planet!
The Fed is worth hundreds of trillions. Actually you cannot put a price on the Fed because it owns the printing press. If it wants to add 50 trillion to the balance sheet — no problemo… click.
So not only do they have the power that goes with controlling interest rates — they also have the power to manufacture money and buy everything and anything.
Now that smells to me like ultimate power — one step down from being god…
Unfortunately for them their power is limited… by energy limits.
Too bad I haven’t been in the banking industry, and haven’t gone through the standard regimen of economics classes. Leaving out these things pretty much makes certain that they would not listen to/appoint me.
Gail, Woody Allen once famously said that he would not want to be a member of any club that would have him as a member.
As did George Carlin I believe
Gail, if you have gone to the banking industry, you would be enjoying the fruits of finite resources in a make believe infinite world. You are destined to start this blog… hehe.. 😉
I guess so. I sort of landed here, when I could see that the constant growth pattern economists were assuming couldn’t possibly work in a finite world.
I would like your opinion on the ability of the fed to get 2 percent inflation. Will a repeal of the affordable care act harm targeted inflation? Thank you.
I have not studied inflation specifically, except that my perception is that wage growth that doesn’t have enough actual goods and services to buy spills over to inflationary growth, as it did in the 1970s. I think that inflation is influenced to a significant extent by global demand. In this regard, the chart that appeared in the article that several people linked to tells us a story about what is happening to debt:
https://gailtheactuary.files.wordpress.com/2017/06/credit-impulse-update-6-12.jpg
This tells us that debt growth will soon be going negative, worldwide. Debt growth and wage growth are closely related – see Figure 3 of my post (for the US, but world probably works better in recent years). With this happening, wage growth will likely be turning negative on a world-wide basis. The growth in goods and services may still be slightly positive. If this happens, we may get falling prices, including energy prices.
The affordable care act effectively directs a fairly large share of consumers’ income toward healthcare. This means that there is less income for other goods and services. Thus, having ACA tends to act in a deflationary manner. Getting rid of ACA allows consumers to have more money to spend on gasoline and other goods, so it is helpful for keeping prices up.
So I expect that inflation will be less than 2%; in fact, it may prove to be negative over, say, the next year. Commodity prices will tend to drop. Repeal of the ACA gives people more money to spend elsewhere, so it tends to hold prices up a bit.
Interesting article…
http://www.zerohedge.com/news/2017-06-12/ubs-has-some-very-bad-news-global-economy
Forecasting the limits to the availability and diversity of global conventional oil supply: Validation
(Hallcock Jr 2014) Energy
http://www.sciencedirect.com/science/article/pii/S0360544213009420
Or just create your own cryptocurrency …. all you need is a computer … and a good PR firm….
Look mom — a perpetual economic motion machine
One can always visit Pe..ak Prospe…rity — Chris will be very happy to unleash the magic formula that resides behind the pay wall …
Or in a similar vein …. one can negotiate with the various rel…igious sects that offer salva…tion … and try to cut the best deal with them in terms of an af .terlife …. (pay to play ba.by)…
If one offers milk and ho..ney — and another offers vir…gins…. I suggest you Show Them the Money and say ‘is that all’
I would advise that before you start your negotiations you create a list of things that are important to you…
For instance — do you prefer high grade single ma.lt instead of milk? Then write that down…
Do you prefer por…n sta..rs over virgi…ns? Write that down…
Pizza over honey? Again … write it down.
Do you want a sports car — priva.te jet? Those might be difficult unless you donate a LOT of money …. but hey … all they can say is no…. so write those on your wishlist too…
smite and others who worship the AI — take note — see my post above — it was originally captured by the AI…. it was not published….
But with a few well-placed …. — and so on…. I have defeated Gail’s AI.
I have exposed the AI as weak — feeble — st0000pid.
And people think the AI are going to rule the world…. they can’t even keep a simple post from appearing on FW.
smi,,te and others who worship the A-I — take note — see my post above — it was originally captured by the A,,I…. it was not publ,,ished….
But with a few well-placed …. — and so on…. I have def,eated G,,ail’s A,,I.
I have exposed the AI as we…ak — fe…..eble — st00,,,,,,,,00pid.
And people think the A…I are going to rule the world…. they can’t even keep a simple post from appearing on FW.
Actually, I had to let this one out. So you didn’t really defeat my AI.
Ahh……. the AI did capture this one…. but then I again outwitted it…. made a few small changes… and the AI was left dazed and confused…. you will notice that this post is doubled-up now because of that
https://vignette3.wikia.nocookie.net/perpetuum-online/images/2/22/I-am-a-confused-robot.jpg
Thanks Gail! I don’t get the rise in interest rates by the fed either.
My thinking is that those in power will always do everything possible to maintain the appearance of control above anything else. Perhaps it is considered better to appear to trigger collapse than to simply respond to forces beyond their control. The position of power is reduced more by the appearance of weakness than anything else. These people are very old hands at power and control. Even if the ship is sinking, it would always be better in their minds to be at helm of the ship giving the orders to steer the ship where they want it to go for the next phase of their plan, of which we can only spectulate.
one theory i have kurt is that the fed is intentionally going to cause a crisis in order to bring in hidden agenda which without a crisis would never have been considered
Seems fanciful in the extreme, as the donuts in charge seem to be leading from the rear…
How about this:
Low rates are creating astronomical bubbles across many asset classes — see the property bubbles in major cities across the planet.
There have been responses to that including heavy penalties on foreign buyers – so we know there is concern about this…
These penalties are having limited impacts — hot money just moves from one market to another then back again ….
Perhaps the very slight interest rate hikes are meant to send a signal to speculators that rates are going higher – beware.
What I wanted to say is that there is no plan B. When the end comes, that’s it, and the Fed knows it. Hence the Herculean efforts of the past 10 years to keep BAU from crashing sooner, rather than later.
Thanks for the new article….
Thanks Gail, another great article.
I don’t have any advanced education or training in economics. I’m not sure if that’s good or bad. Lol
So I humbly submit this simple theory.
What if the fundamental problem is that of declining productivity? When I think of the problems created by our highly leveraged credit/debt system, those problems are the result of the inability to create higher levels of productivity. As an example, if my vegetable farm receives a million dollar loan at 5% interest, that would not be a problem. As long as I was able to increase the productivity of my farm to the extent that my monthly increase in profits was greater than my monthly loan payments. Another words, the capital was invested to justify the interest on the loan. In this situation everybody wins. I have a more productive and profitable farm. The bank receives its principal and interest payments. People get to eat more healthy vegtables. But let’s say despite my best efforts with my million dollar loan I could only increase productivity 2 percent. My monthly increase in profits couldn’t cover the 5% loan payments. I might have to lay off an employee, sell my tractor or sell the farm. Everybody loses. Since I don’t want this to happen, I only take out loans that I project to justify the additional costs of the loan. Therefore, the interest rate is directly related to the projected increase in production. I am aware that most loans in our economy have nothing to do with any attempt to increase productivity.
Is it possible that our economy is declining in its ability to increase real productivity? If we can only grow our productivity one percent with additional capital, then the interest costs must be less than the one percent gain in productivity. I believe our economy is incapable of the productivity gains to justify additional costs associated with higher interest rates. On this Gail we both agree. But, my focus is not on the interest rates. My focus is on declining productivity.
What creates real economic productivity? Isn’t real productivity the result of converting raw materials using energy resources, into higher valued consumer goods? If the answer is yes, then what’s the problem? Is it our declining ability to obtain cheap raw materials? Is it our declining ability to obtain cheap energy resources? Is it our declining ability to provide cheap consumer goods? I believe it’s all three.
My simple theory is that these three elements have a relativistic relationship. Each element’s value effects the value of the other two. Considering each in isolation doesn’t provide a true model of what’s happening. The end result of this interaction is that productivity is declining. We seem to be stuck in a declining economic system that is failing to cover the costs of our debts.
This is an uneducated opinion, please be gentle. Lol
Num 1.
1 gal. of gas equals 600 man hours of labour.. thats like.. huge..
Num 2.
Technology can only use the energy available to it, it can not create zero point energy from out of the blue.
Num 3.
Our societies are aging. Less and less people working.
Num 4.
All the easy to get raw materials and resources have been picked already. The only things thats left is the expensive, hard to get raw materials and resources.
Num 5.
The biosphere is dying under the weight of the Anthropocene.
1+2+3+4+5 = There is no productivity gain that can make this ponzi scheme work. The debts can not be serviced. This baby will crash and burn.
I agree
Unfortunately, likely true!
I think you are correct. Interest rates have to be low, to match the falling productivity. In fact, productivity growth seems to be about zero now, leading to a need for virtually zero interest rates.
The issue is falling productivity. Productivity depends on growth in energy consumption. https://ourfiniteworld.com/2016/09/20/why-really-causes-falling-productivity-growth-an-energy-based-explanation/
Right now, world growth in energy consumption is slowing, meaning energy consumption per capita is gradually falling. Lack of growth in energy consumption, especially in Europe and the US would tend to adversely affect productivity.
An article that would seem to be related is https://ourfiniteworld.com/2015/05/06/why-we-have-an-oversupply-of-almost-everything-oil-labor-capital-etc/ Without anything to invest in, with a positive return, we have an oversupply of almost everything.
http://peakoilbarrel.com/wp-content/uploads/2017/06/605310-1.jpg
UBS Has Some Very Bad News For The Global Economy
http://www.zerohedge.com/news/2017-06-12/ubs-has-some-very-bad-news-global-economy
Wonder how the plunge protection team, or the CBs automated buying robots algorithms, are set to this fall.
This Autumn should become quite interesting with such graphs.
This is very important, in my opinion. This is the same thing that happened during the Great Recession.
Well, I hate to state the obvious, chances are you happen to fall into the trolling trap of several fun identities FE is (re-)known to running around here, while bored and/or crying inwards why not having jet as others jet set peoplez.
It was a joke question by Dennis van Clueless to begin with..
https://www.reddit.com/r/collapse/comments/6g2d7j/collapse_of_global_civilization_by/
I tend to enjoy your articles, but I do take issue with your call to keep interest rates low.
I think we can all agree that debt cycles are a thing. At some point we reach debt saturation, and you’re left in a pinch where you can’t lower interest rates further to ease the situation because they already are too low to begin with. At some point you have to clear out the bad debt (irrational future expectations) so that the economy can then resume growing.
Like the forest fire analogy, preventing all the natural defaults on debt sets up the current scenario where you stay up at night fearing the one eventual spark you missed that takes.
I say raise the rates. It will suck, absolutely. But then good times can’t happen forever; to think otherwise is just irrational. The baby boomers postponed the pain for my generation to endure, but it simply has to be endured at some point (assuming tech is unable to postpone the inevitable — a huge gamble to expect otherwise, in my mind). Those with no debt and adequate savings will do fine. It won’t be Armageddon, but we will have to reset our expectations for what is normal.
This has happened before. Not on this scale, obviously, but it has happened before.
Yep, that’s crucial delimitation, happened before many times, but often inside societies with much higher relative trust to (some) authorities and still existing overall communal cohesion (somewhere)..
Today’s situation not so much comparable on these and many other related fronts.
We are probably more related to “dead end” situations in which such reshuffle only hastened the complexity destruction, increased the speed and depth of the process, so afterwards societies had to fork away into path of completely different future setup..
So what if it hastens the inevitable? That’s the real issue here, in my mind.
We acknowledge the current setup is not feasible on the long term. We just don’t want to be the ones that have to do the hard work of dealing with it and rebuilding something better.
So “hold it together” becomes the mantra. Do everything possible to squeeze as much life out of this critically damaged engine — just long enough so I can die in prosperity. The hell with everyone else after I’m gone. I got mine.
It’s a lack of character, really.
Yes, from this perspective we can observe the relative distinction of the “weight of character” among nations, societies, countries. This would most likely also have to once materialize in the visible plain on the ground. So, don’t naively expect during the latter stages of triage, for example, the Russians, Chinese or Iranians to be allowed going the extra mile in your direction and saving millions of trapped people of the West inside their civil/ethnic war thorn former countries. No most likely, we are going to end our days inside the deprivation cage of local despotic remnants of current dominant order, which would be happy shrinking into detached local-regional fiefdom.
Interesting thoughts. The elites do not lead so much as they serve as totems for society. Their success is given as proof that the dominant socio-economic system is the best possible system. Just look at the status and wealth they have achieved! You should want to be like them too! I think where character, or the lack of it, comes in is when one considers that the dominant socio-economic system has little tolerance for genuine culture. What is left after religion has been usurped by materialism? What is left after community is replaced by atomized “consumers”? What is left after the common good is ousted by narcissism and sociopathy, both of which are incentivized in the dominant socio-economic system? There is nothing left. This is especially true for the elites. What else do they have to champion besides the dominant socio-economic system that provided them their ill-gotten gains? Narcissistic secular materialists cannot create a meaningful civilization. They are devoid of character and they have no imagination.
Maybe all that’s left is all that ever existed in the first place: simple animal behavior disguised by multiple useful layers of abstraction (religion, culture, etc).
I’d like to think it wasn’t so, but hard to find examples to the contrary, particularly in our time.
Or maybe, simple animal behavior has its variant in humans, and these are beneficial to the long-term functioning of the society.
Many animals are social creatures. Humans are too. Religion and culture helps in this regard. In many/most cases, it is hard to separate the two. Laws that are passed tend to reflect what people consider “right” given their religious and cultural beliefs.
Many animals are territorial, as a way of keeping down population. One way they do this is by marking off large territories–much larger than they would need simply to feed themselves and their families. Another way that do this is by fighting other groups. Religion helps is this regard too. Religion can be used as an excuse for fighting. As likely as not, there is also an underlying resource problem.
Religious/cultural practices can be used to try to hold down population, or to try to raise it. The ancient practice of sacrificing a couple’s first-born baby to the gods can be viewed as a population control measure. In India, the practice has been to kill some of the girl babies. This has been a population control measure that the influence of Christianity (plus more resources) has put an end to. I know that in Madagascar (and perhaps other places), the practice was always for mothers’ to pick out the stronger twin, and not feed the other twin, starting shortly after birth. This practice was stopped by Christian missionaries–including some of my relatives.
Of course, Christianity and Judaism have tended to try to raise population–perhaps because the major issue in their early locations was not enough people, rather than too many. I understand that Moslem tends to follow this pattern as well, even today.
It seems to me that one of the main purposes of modern religions is to suppress our natural animal instincts.
It – along with societal norms – and a vigilant police force and judicial system — are what controls what is essentially the most violent cunning animal on the planet — from exhibiting the nasty side that is lurking…
It is not difficult to scrape the veneer of civilization off — a month in boot camp can bring out the suppressed animal in us….
Lord of the Flies provides an interesting take on the true nature of the beast…. as does the widespread amount of bullying on display with children and to some extent adults…
But as we can see religion fails in trying to curb our animal spirits… which are referred to as sins… the fact that religion forgives sins is a recognition of its utter failure…. as to be expected … try to convince a dog not to covet his neighbours bone…..
At the end of the day we are no different than any other animals — in fact we have demonstrated that we are no different than yeast cells in a bowl of sugar….
We are different than a dog only in that we have a higher level of intelligence — which leads us to seek explanations for what we are experiencing…. and to attempt to control our ‘sinful’ nature…
No doubt fossil fuels have contributed massively to this effort to control our ‘sins’ — if you have 5 dogs and you dump a 20kg sack of food among them — they will control their ‘sins’ as well –i.e. they will not tear each other to shreds.
But alas — religion — and police — and courts — and fossil fuels — are all veneer…. they do function to keep us under control.
But one might argue that they are all artificial — and ultimately a product of BAU.
I think that religion is one of the things that “civilizes” people. In the US, studies show a longer lifespan among the religious.
http://www.cnn.com/2016/05/16/health/religion-lifespan-health/index.html
I expect that there may be some “selection” going on here–for example, nurses who are alcoholics, or who are taking drugs from hospitals and using them at home, would be less likely to be going to church. Their death rates would be tend to be higher, leading to at least part of the mortality differential.
The article goes on to talk about the support that churches give people, particularly women. Lack of support and connections is one of the big things that seems to raise death rates. In the US, churches are one of the ways that women, especially older women, make friends. They partly make up for lack of local family for many.
One thing churches can perhaps be helpful with is “forgiving oneself” and “forgiving others” and moving on. Too many people spend an excessive time being concerned about what went wrong previously. Often, it is something they feel that they personally did wrong. Or it could be some error that they feel that their parents made. If people believe that God forgives, it is perhaps easier to believe that they too should forgive and move on, themselves. If they can move on, they can perhaps break past patterns–for example, not beat their children, even if their parents beat them.
I was told that “forgiveness of sin” was “picked up” from other religions. An awfully lot of religious thinking is not associated with any particular religion. If it works, and it is helpful, it gets picked up by other religions.
Another thing religion can help with is reducing concern about money, and the things that money buys. If money is all that is important, life is pretty one-dimensional.
‘I think that religion is one of the things that “civilizes” people’
I agree — it’s part of the package that delivered us from living in a primitive sustainable manner to a ‘civilized’ existence…. which involves comprehensive pillaging of the planet
http://www.photoshoppix.com/modules/coppermine/albums/userpics/10008/pic_1.jpg
“Narcissistic secular materialists cannot create a meaningful civilization.”
Great line.
Equally, the communally-minded, ‘noble’ secular materialists of the Soviet Revolution (and elsewhere) created…….Hell.
There is no happy scenario in which the far-sighted, upright and self-sacrificing escape to sunny uplands, or sheltered valleys after a period of worthwhile sacrifice and adjustment.
Keeping it all going, and behaving with as much decency and honesty as possible, is probably all one can do. In fact, it would be a very great achievement.
xabier-
I think communities like the ones your Spanish ancestors came from are about the only kind that work long term. They make a difficult existence much better.
On another note, look at this for human stupidity
http://earthfirstjournal.org/newswire/2017/06/12/african-farmers-facing-heavy-prison-sentences-if-they-continue-their-traditional-seed-exchange/?utm_source=dlvr.it&utm_medium=twitter
Dmitry Orlov, in his book “Communities that Abide” comes to a similar conclusion about religious communities, and similarly closely connected communities.
Who has money/resources to put farmers in prison?
Thanks, Joebanana.
Well said Rendar,
The majority of people who post on OFW are secular materialists. Any attempt to link responsibility of our materialistic consumer energy based problems with a secular belief system, usually results in an overwhelming emotional response. Any attempt to convince people that the world we live in is the result of our collective actions, and our collective actions are the result of our collective beliefs, seems to be a waste of time.
Whenever I have tried to discuss the role of our belief systems in our finite world. It triggers a deeply psychological negative response. Some simply blame whatever organized religion they hate the most. Others take the time to list every injustice in the history of religious thought and practice. Some just like to share about how they or someone they now was molested by a trusted priest.
I don’t think a intelligent conversation about the role of belief systems can take place on this web site. Which is very sad. Primarily because we cannot change unless our belief system changes.
Let me know if you or anyone else can suggest a website that deals with the global problems discussed here on OFW, and is considerate of the role of faith and belief systems, please let me know. I don’t think it exists.
Thanks Rendar, keep fighting the good fight.
Very interesting comment.
So Theophilus are you familiar with Theophilus of Antioch ?
The entire problem is a belief system.
Really intelligent points being made. Is not our conclusions from OFW a belief system?
“I don’t think a intelligent conversation about the role of belief systems can take place on this web site. Which is very sad. Primarily because we cannot change unless our belief system changes.”
I would think the conversation would have to be moderated or pre agreed not to get emotional.That could foment a narrow range of participants. Not sure what “change” you mean unless you mean admitting responsibility.
Jer 10:23 LORD, I know that people’s lives are not their own; it is not for them to direct their steps.
I like to think of it in a simple phrase I heard years ago
‘we have forsaken what is right for what is easy’
“Any attempt to convince people that the world we live in is the result of our collective actions, and our collective actions are the result of our collective beliefs, seems to be a waste of time.”
I think you place too much importance on beliefs, as if they had an existence independent of our own judgement and needs. Every belief systems are located in time and space, and depend on material conditions.
It’s true our collective actions are the result of our collective beliefs. But our collective beliefs are the result of what? I would say all beliefs are self-serving, their only purpose is to justify our desires and impulses. Human beings simply believe in any BS that permits them to thrive, anything that empowers them to do what they feel is necessary to thrive.
Political-minded people tend to put too much emphasis on belief systems because they think humankind (and human mind) could change if it was made to see the light, if it was taught to distinguish right from wrong. But that is a platonic error, dismantled by Nietzsche and others. People don’t want the truth per se, and people do not err by ignorance. They err because the truth is too unpleasant, unpalatable, or unprofitable. First we (ie, our limbic system) choose what we want, want is convenient to us, then we (ie our neocortex) racionalize it. That is always the process.
Not everyone is like that, I admit, but the people who are able to see beyond their interests are a tiny minority, one in a million or so. And because of this, politics (political hope) is a waste of time, as all kind of religions (IMO).
The yeast will consume the sugar — it will not save any of it for a rainy day — it just gobbles it up… maybe a few yeast sales think differently… but they get trampled in the stampede by others intent on gobbling the sugar as fast as possible…
Let’s imagine if we had a referendum whereby the CBs asked the people: Are you ok with us giving USD10,000,000 to every person (the cattle are too stupid to understand that this would result in $5000 loaves of bread… )
Here’s an indication of the response we would get:
Theophilus, belief systems definitely play a major role in the development of our civilization. I live in the Silicon Valley and it is a society awash in belief systems: trans-humanism, the singularity, the cult of Elon Musk, Market worship, American exceptionalism, etc. I once heard a CEO of an internet marketing company give a presentation to his company where he asked the audience: “What’s more important than money?” It was meant in part as a joke but it still underscored his fundamental belief system.
One website I’ll recommend is the “HipCrime Vocab:” http://hipcrimevocab.com/2017/01/26/summary-of-the-great-transformation-by-karl-polanyi/#comment-486
The author relies heavily on anthropology, especially the work of Karl Polanyi and his book “The Great Transformation”:
“Polanyi’s book, The Great Transformation, argues that the world we inhabit today, where everything is distributed by markets, and markets alone, was not a spontaneous or inevitable development; rather, it was a project of concerted government action from the very beginning. Moreover, this phenomenon is very recent. Only in the last two-hundred years or so have we become dependent upon impersonal, arm’s length transactions and vast, global trade networks to provide for nearly all our daily needs. Even our social relationships are increasingly defined by markets and our role in them—our job becomes our whole identity, and companionship is rented by the hour.
In contrast to the hypothetical economies of the past, such as those dominated by barter postulated by Classical and Austrian economists, Polanyi based his theories on the burgeoning anthropological literature from around the world, along with an extensive review of history and the recent archaeological discoveries that had been made in the Near East.”
You may not find explicit information regarding organized religion but rather intriguing examples of how our so-called “free-market capitalism” developed from ancient societies that operated under much different socio-economic organization. It’s the differences between our current organization and the organization of ancient societies that I find enlightening, anyway.
Interesting take on belief systems from Jordan Peterson.
Did I mention I believe in the Tooth Fairy and Santa Claus?
How would you feel if I were to endlessly plug the merits of both of these ‘gods’ who give me stuff?
What has your god given you lately?
Now do you see why the true gods of FW get quite agitated when the discussion turns to false gods?
Have I also mentioned that we have big plans for those who join us — or if that is not possible at least worship us? FW is the jumping off place to the next big thing….
Though shalt not worship false gods if though wants to be part of the next best thing….
https://endtimebibleprophecy.files.wordpress.com/2016/03/false-god-molech-charles-foster-1897-offering-to-molech.jpg
On this subject, when I cleaned up my diction, I had nothing left to say,
except there’s no religion, no religion, no religion here today.
https://youtu.be/RlNK5ZJMP3U
Very fine comment. I agree with you. I think too many commenters here have gotten “hung-up” regarding particular writings in the Old Testament, or regarding particular actions by one group against another, in the name of religion. They somehow think that these writings and actions need to be interpreted as being appropriate for today. They too have gotten sucked in by materialism, narcissism, and sociapathy. They tend not to be a part of religious communities, so they do not understand the role that they play for at least some people, and the role that they have played throughout the ages. Our system is self-organized; it changes. We end up with Donald Trump and the Prosperity Gospel.
The 2016 presidential exit polling reveals little change in the political alignments of U.S. religious groups. Those who supported Republican candidates in recent elections, such as white born-again or evangelical Christians and white Catholics, strongly supported Donald Trump
http://www.pewresearch.org/fact-tank/2016/11/09/how-the-faithful-voted-a-preliminary-2016-analysis/
There are a lot of religious people who are not born-again Christians or white Catholics, by the way. And many/most of them definitely did not support Donald Trump. You are picking out the religious types you don’t like.
I correspond with the people who study ecosystems as dissipative structures. In case you have not been following this blog, dissipative structures are self-organized systems that “grow” with the use of sunshine and other energy inputs. Such structures include plants and animals, ecosystems, and economies. One characteristic of dissipative structures is that they have a finite lifetime. They eventually die/collapse, but not necessarily by “running out” of energy.
When I correspond with the people who study ecosystems as dissipative structures, they tell me that forest fires are one of the things that bring to an end a current ecosystem as a dissipative structure. Eventually, a new ecosystem can arise from the ashes. So you are exactly correct with that analogy.
The question is, “What kind of new economy can arise, if energy resources and, in fact, mineral resources of all kinds are very depleted, and pollution is a major problem?” The other detail is that we don’t have the knowledge base to go backward. We also don’t have enough animals, to use them for transport.
Collapses have occurred before, but on a very much smaller scale. Other parts of the world we able to pick up where the collapsed economy left off. Also, most people were farmers, and their skills easily transferred. We don’t have those conditions now.
The goal should be Star Trek (or whatever term you want to call it). Either we come together to realize goals greater than achieving personal wealth, or we flame out and go back to feudalism and the dark ages for the majority of us.
The tech is coming — some of it is already here — to automate much of the labor required by society. When the ‘job economy’ no longer needs to exist, we will need to replace it with something else. If you want an example, look at the military. We operate within a given budget of resources provided to us. It’s by no means efficient. But, provided sufficient goals, humans are capable of overcoming large challenges.
We need to change the goals of society in general to something more than personal greed. Capitalism got us this far, but it’s not the final answer.
How’s the weather in DelusiSTAN today?
I wonder which is more delusional — working towards a solution, or attempting to firewall the throttle on an engine that is unstable and on fire?
Or maybe we should all just stick our heads in the sand and bemoan the coming end of the world. Because muh end of times and all that.
In case you hadn’t noticed… the gods of FW understand that there is no solution … we are here contemplating which disease finishes him off… and discussing funeral arrangements.
Could you PLEASE stop screaming at the patient trying to wake him up…. you are disturbing him…
https://i.ytimg.com/vi/Q7QWjWt3vHY/hqdefault.jpg
If you want to discuss solutions — go to http://www.peakprosperity.com
Hahaha FE!!
Another great site if you’re looking for (delusional) solutions you can also go to CASSE
http://www.steadystate.org/
I have had many arguments with that group over the years. They claim they mean well–why don’t I support their views?
The closest we have been to steady state:
https://upload.wikimedia.org/wikipedia/commons/e/e0/PRIMITIVE_MAN_HUNTING_ANIMALS_at_the_Museum_of_Vietnamese_History.JPG
And how/why would the goals of society change for the better?
How do you keep people from having children? You can’t.
How do you tell people to use less resources? You can’t.
How do you tell the elite to to stop chasing personal wealth? You can’t.
Don’t waste your time on utopian dreams, it’s a self organizing system. That’s why all we can hope for is BAU lasting for as long as possible. We cannot change our course to prevent/ease collapse.
It’s all fun and games for the elders until someone goes Mad Max!
http://imgur.com/a/Re1Fj
I am not sure if this is what you were linking. http://www.caseyresearch.com/cs/project-fedcoin-presentation-google-cs
This is a presentation by Doug Casey on the possibility that the US will do what India did, with blocking big bills, and requiring everything to go through banks. Only in the version he is talking about, all dollars would be liabilities of the Federal Reserve. It would be a sort of parallel currency, except it could be sure to collect taxes on all transactions, and it could block transactions it chooses to block.
Angels on the sideline,
Puzzled and amused.
Why did Father give these humans free will?
Now they’re all confused.
Don’t these talking monkeys know that
Eden has enough to go around?
Plenty in this holy garden, silly monkeys,
Where there’s one you’re bound to divide it.
Right in two.
Angels on the sideline,
Baffled and confused.
Father blessed them all with reason.
And this is what they choose.
And this is what they choose…
Thanks for the article, it’s important you focused on explaining your position on the interest rate.
I guess we would more or less agree, that the domesticated human effort (civilization) is at its core a rent seeking effort, both in the sense of organization (inward and outside society interaction) as well the extractive relationship with the underlying environment.
Although, I’m not sure, based on that we should single out the interest rate as the primary pillar of the superstructure for the domesticated human species. I tend to see it “only” among the other top three, perhaps five factor.
However, you might be correct in the end, that if the current concluding cycle of organizational effort complexity (~200/1000yrs) became so much integrated with the interest rate policy nexus, the “way out” for humanity simply doesn’t exist in any agreeable shape or form. Hence the possible corrective might be sequenced in only after flushing the current system hard, i.e. everything is futile, since this is extinction level threshold, and what might eventually survive at all is from today’s perspective unappetizing to say the least..
Interest rates seem to be a “big deal” since the 1970s. This is about the time that financial institutions grew so much, and the interest in debt financing increased. Actually, I found that right after WW2, the civilian debt level went way up, because government debt had risen a lot before and during the war. When government debt was repaid, something else had to “replace” it, or the economy would collapse.
I haven’t done research on the issue, but my impression is that in historical periods, an interest rate of 5% was typical. (Actually, this seems low, given the default risk involved.) There was a lot of loan forgiveness historically, especially on agricultural loans. This was made possible because debt wasn’t “securitized,” and banks weren’t depending on it. Also, the fact that the system wasn’t worldwide was important–one local area would collapse, while another one would continue on.
I have been reading your posts for some time and they are often like peeling back layers of the onion on the oil story. I realize that they represent your ongoing research in an “update” fashion and that’s great.
They are like a rich banquet of evidence and insights, but if I send any to a friend new to the issue, I am afraid he might get overwhelmed.
*My question is: is there a certain post/URL that summarizes the issue and is more accessible?*
Thanks!
This is an issue–sorry I don’t. Some posts are more accessible than others. If a person has never thought about interest rates, I doubt I could make this post accessible.
I probably need a co-author in trying to pull things together into a more accessible stream. I could, in theory, write a few books.
Thank you Gail for the important topic of discussion. You provided an excellent discourse for thought and discussion.
Over on the other website, Shortonoil, is still battling it out there with Fossil Fuel Cheerleaders.
A recent comment from him
“The FED supplied a very important contribution to make that Ponzi scheme possible; about $14 trillion in counterfeit money. Even though it is often assumed that this financial miracle can continue forever such a a simplistic evaluation is ignoring the other half of the process. The currency that the FED prints must have someplace to go to be of any use, and up until now that has been the credit markets. The FED does not control the other half of their money creation process, and credit is not doing well. Commercial real estate is folding, personal bankruptcies are increasing, student loans are rapidly turning into NPL, and most of all corporations are no longer buying back huge blocks of the their own stock. Without an economy that is ever willing to acquire more debt, that it can not pay back, the FED’s money printing scheme comes to a halt. Once credit finds itself at the brink of bankruptcy, which it has almost attained with ever growing household, and commercial debt, it stops borrowing, and the FED can not print into a vacuum. The Shale wizards will find that their financing has gone with it, and an industry, that has never turned a profit except by flipping leases to the next greater fool, will get sucked right into that same hole!
An energy super power, constructed on more debt than it can ever repay, is just another super oxymoron!
Not sure how they will fix this one ?
They won’t! To fix it would require a huge amount of energy that is just not available. This entire civilization was constructed around a commodity that could deliver huge amounts of energy to its economy. That is no longer the case. Depletion is resulting in an ever increasing amount of energy needed to produce petroleum; there is now very little remaining after its production to power the balance of that economy. Consequently its economy will contract, its monetary system will fail from lack of growth, and it will consume the assets it has accumulated over oil’s 100 year productive duration. The global industrial system will perish, and something new will replace it. If it will be something that creates a better world, or a worse one will be for us to decide; but the time remaining for decision making grows ever shorter.
Hope this makes this past the censors!
http://peakoil.com/forums/post1363452.html#p1363452
I guess I would tell Shortonoil that it is falling interest rates that provide the opportunity for debt growth that allows the borrowing to continue. If interest rate are falling, then monthly payments are falling, and goods are becoming more affordable. Once interest rates fall too low it is hard to find new investments to make use of theoretically available borrowing ability.
The other thing that helps is a supply of very cheap energy products, to help push the economy along. Of course, we lost oil as a cheap source of energy quite long ago. Coal was “working” until not too long ago. Now its consumption is down as well.
‘The global industrial system will perish, and something new will replace it. If it will be something that creates a better world, or a worse one will be for us to decide; but the time remaining for decision making grows ever shorter.’
Wrong
Not the first time a civilization, culture collapsed and entered a “Dark Age”
Public Television rebroadcast their program entitled “The Greeks”.
A three part series on it is available on YouTube
Here is the first episode… Actually very well done on the rise and fall…
https://m.youtube.com/watch?v=Qazf77VYIsU
So, we are just another in a long line that met it’s end…Ahh, that’s too bad, poor us (sarcasm). Right Fast Ed?
Can you remind me if spent fuel ponds and comprehensive chemical farming were involved in those previous collapses?
Were there 7.5 billion people alive during any of them?
I don’t know Eddy? Hard to say about those spent fuel ponds. Perhaps there will pockets that will spared? Something like in the first Planet of the Apes film with Charleston Heston.
In the video, “The Greeks”, the narrator pointed out we were not the first Global economy,
ours is run by oil, theirs was started by the Bronze…the Greeks needed to trade for copper and tin (from Afghanistan no less, irony if there ever was one). The thing is, nothing lasts forever! Our present knowledge bank is run by cheap energy, once that expires, as it surely is as we breath, those so-called ” modern advancements and discoveries ” will be obsolete!
Nothing special about it all. As one Art instructor pointed out, all ideas are just floating about, we humans just need to connect with the antenna to our consciousness.
As Gail pointed out, maybe there is a “,plan” of some sort.
Just fascinating, we are not the first people to face the collapse challenge.
Believe, those Greeks were far superior to us in my book.
The historian Bettany Hughes made an excellent film on ancient Cretan civilisation: she ended it with the Cretans hiding out in caves to which they fled when their trading empire collapsed.
When I was in Crete years ago, a piece of one of their palaces -just a fragment of a step from some stairs, it was simply crumbling away uncovered – somehow made its way into my rucksack.
When I look at it I reflect on those long-distant Cretans and their fate.
Yes , Xabier, it’s like looking in a mirror about pondering on their fate.
There was a concept of “Eternal Rome” that held a strong bond with the Mediterranean people up to the 5th Century AD. Suppose they themselves felt secure in the idea that their way of life was forever more!
We have the “privilege” of being aware it is not!
So long as human beings are involved, it will always be for the worse.
As a ‘saver’ and someone who has always lived and purchased within/below my means, I say screw QE. QE has done far more harm to people’s expectations and financial well-being than it has helped. Sure, the FIRE elites have made out like the bandits they are, but the continued rape and pillage of our resources for people to buy on time that which they cannot afford is very short sighted, and just plain wrong. So, people like me….61 years old with money in the bank….are getting hosed as our savings do not keep up with inflation. So what? I’ll just save more and when the crash happens I’ll buy more property to park my savings. If there is no crash, well no big deal as I have been retired for years, anyway. I’m going for a walk as soon as I hit the send button.
When I got out of high school in ’73 I worked in a sawmill for a year. I remember walking in to work one afternoon shift with someone singing out as loud as they could, “Hi Ho, I owe, it’s off to work I go”. And if you have ever had to work hard to survive, especially with folks who have done so for decades, you soon learn another song, a song of escape and freedom from debt slavery. The only way to accomplish that is either steal the money, inherit, luck, or save and make prudent investments. QE distorts that approach and rewards inappropriately.
Paulo — without QE you would be dead.
Consider this:
Without QE interest rates would be much higher — that would mean people with stagnant or falling incomes would not have been able to buy cars houses and other stuff
If people do not buy stuff — that would cause the economy to collapse…
Yes there are toxic side effects from QE — including enriching quite a few people — but then even what remains of the middle classes were enriched too – their homes are worth more….
But like Huey Lewis famously said decades ago — it’s the grail to find a drug that does not result in a hang over… we still have not found that drug…
Actually, I think the pension plans that invest in bonds have come out badly with QE. Also, individual investors trying to invest using bonds.
At 61, you have been retired for years. Retiring this early is not really sustainable in any system. It puts too much pressure on other systems trying to support all of the retirees.
QE has prevented the stock market from collapsing — I understand pension funds hold a lot of stocks….
Gail; Another enlightening post. You are my hero. I was wondering: Do you ever get to have dialogs with politicians (Federal, state, and local) about your views? Are they aware of your ideas about the energy/economy connection? When I read newspapers, listen to the radio, or watch television, government officials never seem to appreciate that all our resources are FINITE. I would also include the “talking heads” on tv and the “op-ed authors” in newspapers with the politicians. They all seem clueless that we do indeed, live in a finite world. The challenges of climate change pale in comparison to what lies ahead when peak energy and peak resources occur .
Man has ascended thru the “stone age”, the “bronze age”, the “iron age” and into the present time which I would designate, the “carbon-hydrocarbon age”. It is because of coal, natural gas, and especially oil, that there are 7 billion + people inhabiting the earth today, The carbons and hydrocarbons will eventually run out. Then, what happens to mankind? I fear it is a descent to some past former “age”. I have noticed that people often seem to equate technology and energy. They assume that technology will solve our problems. But as we know, energy and technology are two different entities. A smart phone won’t solve the problem of a lack of oil and the energy we derive from it. The future does not look promising. It makes me sad. And when things really fall apart, most will be taken by surprise.
Gail, your blogs should be required reading for every politician in this country, and probably in the world.
Imagine what would happen if CNN the NYT WAPO…. the BBC, Le Monde etc… ran a front page headline:
PEAK OIL HAS PASSED — BRACE BRACE BRACE — FOR THE END OF CIVILIZATION
Followed by a comprehensive explanation of how the end of cheap oil caused the financial crisis — and how the central banks have been fighting for our lives since 2008 — concluding that there is no solution — then went on to explain the implications — starvation – violence – rape – pillage — spent fuel ponds – almost certain extinction.
Haha that would speed up things quite a bit…as much as we hate MSM, let’s be happy they exist, because if everybody was on alternate websites like this one, the collapse of BAU would become a self-fulfilling prophecy…now if we could only get our hands on those cyanide-laced chocolate candies 😉
With the Oxycontin liquid centres….
Suppose I submitted a book of this type to a major publisher. How likely would it be to be published? Advertised?
Don’t underestimate the impact of new technology on oil and gas extraction. Horizontal drilling, advances in hydraulic fracturing with sand propping, faster drilling speed, substitution of plastic for steel pipe, and ‘walking’ rigs which lower drilling cost, have revolutionized the oil and gas industry during the last 8 years. It was less than 15 years ago that many people were worried about what would happen to the United States when we had to import most of our natural gas. I saw Alan Greenspan testify what a great business opportunity building LNG import terminals was going to be. Now we are building export terminals to send LNG to China. We are shipping the stuff from Louisiana to Brazil. ( I wouldn’t let a cubic meter of gas leave the country. It is too valuable for chemical production. But I’m not Dictator of America.)
Until recently, thin, deeply buried layers of oil bearing rock were uneconomic to drill because you couldn’t cover the deep drilling cost, with the amount of oil you could get out of the limited space around the vertical drill hole. Going sideways for over a mile through the rock layer changes all that, and opens up vast additional oil deposits around the globe to profitable exploitation. Ditto with natural gas.
Technology can change a lot. Oil is finite. But thanks to new extraction technology, peak production is still a ways off.
As far as the electric grid, if it goes down, nearly everyone in the country will be dead in a month. That said, the grid in Cleco country, in South Louisiana is in pretty good shape. They just changed every cross arm on the main feeder line for this area, and replaced any poles showing rot with new ones. It only took a couple of weeks. All new construction is underground. That might go for a century with no replacement, except for an occasional transformer. And new machines can bore holes far cheaper than just 20 years ago. Smart meters could limit demand to periods when the existing wires can handle the charging of electric vehicles, when they do become more common.
The US government will do everything humanly possible to keep the grid energized.
Bill Simpson, are you aware that NG production in the USA is flat over the last year despite a doubling in the rig count?
For what it is worth, BP is showing world NG production up by only 0.3% in 2016. The only country that was up substantially was Australia. The Middle East also contributed to NG growth. The US is reported to be down -2.6%; Eurasia is up 0.2%.
I read a fairly impressive-sounding story about falling costs for removing very heavy oil, too. http://www.zerohedge.com/news/2017-06-07/saudi-america-–-how-new-tech-creating-another-oil-boom
Even when technology seems to save us, we have the problem of increasing complexity and the growing wage disparity that brings. Thus, in theory, we could add a lot more oil and other fuels, but prices still stay too low for Middle Eastern exporters, causing them to collapse. The question would be whether some group could continue–perhaps the more wealthy in countries whose energy supplies are again increasing. I am doubtful that a pullout from our current problems could occur, but I suppose I could be wrong.
DEAD MALL SERIES: The Disaster of Pittsburgh Mills. From a valuation of nearly $200 Million at its inception in 2005, down to a value of ….. $100 dollars in 2016.
The US has twice as much square footage of retail space per person as the next closest country does. That, and online shopping, will kill hundreds more malls.
The fact that people are maxxed out on debt… are unemployed — or have low paying part time jobs — with no wage growth ….
Is a far bigger factor than online shopping
I am afraid we will have a lot of these. I wonder which companies/pension funds are carrying the debt of these malls.
Between 2011 to 2016 the number is around 7 trillion.
…oops
“(g) Mid to late 2014 to Present. The US removed its QE, leading to a sharp reduction in carry trade in US dollars. Many currencies fell relative to the US dollar, making oil products less affordable in these currencies. As a result, oil prices fell to a level far below that needed by oil producers, especially oil exporters.”
Steve St. Angelo aka from the srsroccoreport.com says in his most recent article that CB’s have incresed their asset purchases to the tune of 1.5 trillion in the first 5 months. Between 2011 to 2011 the number is around 7 trillion and since the financial collapse of 2008 the US banks alone have purchased 12 trillion dollars in assets. So it looks like the US CB’s have lied about tapering QE.
https://srsroccoreport.com/massive-central-bank-asset-purchases-last-ditch-effort-to-save-economy-cap-gold-price/.
Not exactly, as shown numerous times already incl. nice graphs in color, not only on this blog, the global systemic CBs are passing a baton of sorts (actual QE printer device). Therefore in aggregate and on zoom out graph their support appears steady through time, recently BoJ/BoC/ECB filled the gap, where FED supposedly stopped the QE. And apart from this method there are also other vehicles how they support the overall system..
What’s the ECB pumping out – 200 billion Euros per month? Japan?
Then there is China — where do people think all these wealthy Chinese who are flooding into countries buying properties with cash got the cash from….
This money is seeping into every crack of the economy …. case in point … I was speaking to the local bank manager in the little down near us the other day … asked what the state of the property market was —- she says some small parcels of land were just released in a subdivision — prices are up over 30% since the last release a year ago….
30%!!!!! in one year!!!!
This isn’t Silicon Valley money — $200k plots — this is Chinese money flooding Auckland — people cashing out and retiring and moving to a more livable place…. and inflating the property market in a bucolic rural area just north of the Antarctic.
This money is washing up on shores across the planet….
But no doubt the Fed is still active big time …. their plunge protection teams are hosing down every spark… every fire…. with cash.
http://www.oikonomia.info/wp-content/uploads/2013/08/Cashflow.jpeg
Quick, borrow money against your land, and spend it on something else! That is what keeps the economy inflating.
Ha ha…. ya…. if I run out of cash that’s definitely what I will do!
I have always assumed that we are only seeing the tip of the ice berg in terms of Fed policies….
The Fed does not even acknowledge that it is a privately held company (which it is) — they have no problem with lying.
I think the relativity between what the US purchases and what other countries purchase is important too. The US has only been replacing expirations since mid-2014. That is not enough. The dollar ends up very high relative to other currencies.
I keep wondering about interest rates and what happens when they get this low. I mean, in purely technical terms it is still a “20% reduction in interest rates” when they drop from 0.5% to 0.4%, and the debt load drops proportionately (unless there are fees that don’t change with the rate), such that one could in theory simply travel downward on the log-scale indefinitely and leverage the economy upward at the same (exponential) pace it has been leveraged without ever crossing through zero into negative territory. Where does this mathematical artifice break down? Is there some atomic value of interest that can no longer be divided, that causes a nonlinear event once you try to split it?
At some point (we are close) a person gets to 1/0, and we all know that 1/0 can’t work. In fact, some countries have tried negative interest rates, but I don’t think that they have really spilled through to commercial loans.
I remember stories about oil producing countries using money at 0% interest rate to speculate in the derivative markets, and thus to manipulate oil prices. Once the interest rate went up even a little bit, they couldn’t do this. This seems like a possible outcome of slightly higher interest rates/
“Worldwide, the International Institute of Finance reported an increase in debt of $70 trillion, to $215 trillion between 2006 and 2016. This sounds like a huge increase, but it only amounts to a 4.0% increase per year during that period”
REALLY?
70T growing at 4% per year should take 17.5 Years to double to 140T.
Pete
it’s an increase OF 70, not FROM 70.
Agreed!
It is very good you bring up this important topic. I agree with many things you are writing
However, peak oil is a process of scarcity of low cost oil, not an event in the year of maximum global production and afterwards we have the end of the world. And already on the way to the unconventional peak, the whole system has extreme problems.
In 1970, the economy was in a post WW2 boom and then 2 oil crises hit.
During these 2 oil crises in the 1970s (peak oil US 1970 – which allowed the OPEC embargo in 1973 – and peak oil Iran 1975) interest rates went skyhigh in response to inflation from rising oil prices. It was the market response. That killed the economy and oil demand went down and later grew at a slower pace.
The Fed then tried to bring interest rates down over 20 years to around 3.5% in 2001. The Fed then increased interest rates in response to rising oil prices. But the oil demand shock from China’s Olympic Games mid 2008 and the conventional oil peak around that time caused the financial crisis which forced the Fed to bring down interest rates, exactly the opposite of what happened in the 1970s.
I think the difference was that at the time of the financial crisis the US had a precondition of accumulated petro dollar debt.
So once the immediate impact of the financial crisis was over, oil prices went back up again and allowed more expensive unconventional oil (tight oil, tarsands) to be produced. Lower interest rates were not enough and money printing started, QE1 – QE3, further supporting high oil prices and also leading to an asset bubble. But these high oil prices ultimately killed the usual growth of the economy in 2014. In this year the end of QE3 was announced and US inventories were overflowing with unsaleable tight oil which many refineries cannot use. There may be also internal Chinese structural changes which contributed. You may know more about it.
So the Feds policy backfired. You cannot square the circle when low cost conventional oil is peaking (i.e undulating plateau). Oil companies thought oil prices would remain around $100 and went for expensive projects these companies are now forced to commission so that they have at least some revenue to pay interest on their loans.The system is in overshoot mode. After 2014 CAPEX has gone down. This means when all expensive projects have been commissioned there will be a gap. That is why the IEA gave this warning in March 2017:
HOUSTON – Global oil supply could struggle to keep pace with demand after 2020, risking a sharp increase in prices, unless new projects are approved soon, according to the latest five-year oil market forecast from the International Energy Agency.
https://www.iea.org/newsroom/news/2017/march/global-oil-supply-to-lag-demand-after-2020-unless-new-investments-are-approved-so.html
The problem now is debt incurred during the high oil price period and that oil companies cannot make enough money in the upstream sector. That in turn reduces government revenue. A case in point is UK were tax revenue from the oil and gas sector 18 years after its peak is practically zero, tightening the budget for social expenditure and causing problems at election time.
http://budgetresponsibility.org.uk/forecasts-in-depth/tax-by-tax-spend-by-spend/oil-and-gas-revenues/
I am just writing a post on UK and that is why I came across it.
By the way, the Hubbert linearisation works well in homogeneous basins and economic systems. See this analysis from Jean Laherrere on UK
https://aspofrance.files.wordpress.com/2017/04/mclukfields.pdf
One country after the other will peak, causing all sorts of country specific problems.
In 2002, neither Matthew Simmons nor George Bush could imagine that oil prices could go beyond $100, driven by low interest rates and money printing..
No financial outmaneuvering can change the fact that low cost conventional oil is gone, except maybe in some ME OPEC countries.
The media has no idea what is happening
29/5/2017
Australian ABC TV selectively quotes BP to match its own “no worries” narrative
http://crudeoilpeak.info/australian-abc-tv-selectively-quotes-bp-to-match-its-own-no-worries-narrative
Excellent post!!!!!!!
Hey JT, we agree!!!
+++++++++
Thanks Matt. The problem with most oil forecasters is that they have assumed that oil prices could go to $300 per barrel. If this happens, we can get all kinds of very poor quality resources out.
Gail,
I have a question for you relating to the recent and current oil prices. You have commented many times that oil companies cannot make Operating Profit low level of oil prices of oil we have seen recently.
If this is correct we should be able to see it in the reported GAAP operating profit number for oil companies. This number should be negative (very large negative!).
2016 summary annual report for Exxon Mobil indicates earnings of $7.8 Billion (http://nasdaqomx.mobular.net/nasdaqomx/7/3537/5044/). I realize this profit figure is just not operating profit only but also includes asset sales and investment income.
Is there a way to verify that in fact big oil companies currently have negative earnings in their operating activities?
See https://srsroccoreport.com/end-of-the-u-s-major-oil-industry-era-big-trouble-at-exxonmobil/
“Basically, the company is now borrowing money to repurchase shares or pay dividends. This is not a viable long-term business model.” from article linked by Fast Eddy above.
The ExxonMobil stock price should have cratered by now.
If market forces were permitted to play out…. Big Oil would be no more by now
Gail
Great post, thanks. I have been waiting for an interest rate discussion. I am still perplexed however with many issues regarding interest rates.
1. Why are interest rates so low? This question assumes that the central banks do not control the interest rates on the long end of the curve, the markets do. So is it that the “invisible hand” is expecting low inflation/deflation, or is it that the bond holders are not perceiving the risks of non-payment resulting from peak oil/peak economy? Or is it that there is just now so much fiat liquidity sloshing about the system, people are just throwing other people’s money about here and there knowing that one day soon the music stops?
2. What happens to interest rates when the whole global economic/financial system goes into sustained reverse (negative growth)? Is that negative interest rates? Or the great financial reset, and return to gold standards etc. ? With these question I am taking the position that the physical economic system can continue, albeit after hitting a major air-pocket, but that a new financial regime and political order will have to be installed. Probably multiple regional systems, but with some mechanism for continued global trading. This point two is probably a rhetorical question, no one really knows. I know most commenters on this blog think collapse will be total.
“What happens to interest rates when the whole global economic/financial system goes into sustained reverse (negative growth)?” I’m thinking that an under-reporting of inflation has masked a sustained low-level -0.5% or -1% negative growth rate for more than a decade now, both in the US as well as worldwide. So the answer to your question may be to look in the rearview mirror and see what has already happened.
To some extent, I think “inflation counts.” Bad counting of inflation is not a terrible problem. What we really need is a combination of economic growth and inflationary growth, because debt is on a fixed-dollar basis, and there is a leveraging effect. Also, the fact that inflation has been low becomes a major problem for repaying debt with interest.
But it would be nice to get some “real” growth, especially on a per capita basis. This is what allow standards of living to rise.
Your thinking is all wrong.
This thing called the economy … is based on cheap to extract resources — the master resource being cheap to extract oil.
We are most definitely finding no more of that.
So this thing called the economy will no longer exist in the near future — interest rates won’t matter — gold — you name it — we are on the edge of the abyss staring down into a black hole.
When the oil stops — the food stops — the fuel ponds boil — and we all die.
Very simple stuff… actually
Don’t get to hung up on the future — there is no future
“So this thing called the economy will no longer exist in the near future…” “There is no future”
I think I understand the total collapse viewpoint, I do not dismiss it out of hand, but think it more likely that a new economic (and social) system will take the place of the current one. (From the web: An “economic system is a system of production, resource allocation, exchange, and distribution of goods and services in a society or a given geographic area”). In history, various societies have operated with very different money systems, some with no money at all. If memory serves the Inka’s did not have money, but had big surplus of food etc. before the Spanish and disease arrived. Of course, we are pretty far down the collapse scale when we talk in those terms. The point is that other systems have existed and fed people and provided for a working society, and a future system is imaginable.
The air pocket we hit could be pretty big. It depends I guess on the flow rates of energy we can continue to extract from fossil fuels and other sources under the new regime. Far less than today without a massive debt based system to pull forward energy use. And yes I am aware of how much we have used up our resources and degraded the environment. (The fuel pond issue…is scary. Don’t know if it is a planet killer. Is there documentation on that?) And yes, I am leaving out abrupt climate change.
I raised the questions on interest rates in my comment because I have wondered if they provide a view of what is coming, or not. If the near term future is so gloomy, why is that not reflected NOW in higher interest rates? As best I can tell, the collective wisdom of the bond market is currently saying deflation, but not depression and collapse.
I know some folks will respond that the central banks control all the money and all the interest rates and have us all working under a great illusion, a la the Wizard of Oz analogy. That seems simplistic. There is enough knowledge of limits of growth in governments, military, financial institutions, to have some understanding of the negative growth risk. (To understate the collapse risk.) The best I can figure is that we are willingly believing in what the central banks are conjuring up, as we are biased towards believing in a positive future, as that was evolutionarily/reproductively adaptive. And that the time line for collapse is still some years away.
That said, I do now recall Niall Ferguson book the History of Money, and his studies of government bond rates through history. If I remember correctly, the rates were fairly “normal” right up until the time that they were not. In other works, in some exceptional situations, before wars broke out for example, the bond markets did not correctly forecast the future.
If I remember correctly, the rates were fairly “normal” right up until the time that they were not. In other works, in some exceptional situations, before wars broke out for example, the bond markets did not correctly forecast the future.
Err, that’s been the case since at least 2008. Lol….
1. There will be no energy save wood — we had a massive deforestation problem before coal came online – no coal — and we’d have returned to living a very primitive state of living
2. Spent fuel ponds – no energy – no way to keep them cool — therefore we get 56,000,000 Hiroshima’s of radiation released (I have the evidence of this – just ask and I will post)
3. Nearly 100% of all ag land globally is farmed using petro chemicals – these destroy the soil and nothing will grow if the PC are not available. 7.5 B are going to kill and eat everything that moves and grows in a very short time period — then they will all starve to death
This is an Extinction Event. There will be no new system – no reset.
I have to agree with FE. We exist in an artificial bubble that is maintained by massive inputs of energy from fossil fuels. It took about 250000 years to reach a global population level of about 1.6B people in 1900. It took 100 years to go from 1.6B to about 7B. That energy to produce those extra 6B people came from fossil fuels. When that energy goes away the excess 6B people must also go away. The other 1B will be at risk too because they rely on food, water and shelter that is provided by fossil fuels. In other words the bottom will fall out from under us all. I am afraid we are facing a massive die-off. Then factor in the feedback loops of disease, climate change, nuclear power plant meltdowns, riots, raping and pillaging and it just going to be an unmitigated disaster of epic proportions. Once it starts to unwind it will be lock a clock spring breaking.
As has been stated previously…. the world is going to turn into a hell hole… anyone who is still lingering a few months after BAU ends… will be suffering so brutally .. that death will be welcome.
Anyone who doesn’t believe this needs to completely unplug from BAU for a few days — just to get a taste…. of course that would not even be remotely close to what the end of BAU will look like… nobody will be murdering, raping and pillaging you — there won’t be rotting dead bodies everywhere, nobody will be eating dogs and cats and children, there wont be mounds of human excrement all over the place….
But nevertheless… a worthwhile experiment….
Why are interest rates so low?
I think it may have to do with the low general trend of the market. No one can make a very adequate return on investment–look at Uber and Amazon. Wages are not going up by much. Businesses and governments cannot afford to pay very high interest rates. Inflation doesn’t rise by much in such an environment. In fact, deflation may be a problem.
When the whole system goes into sustained reverse, there are a whole lot of defaults on bonds. I would expect that interest rates go through the roof, because banks and investors are trying to add a premium, to consider bankruptcy or other non-payment. These high interest rates are likely to bring the system down.
Interest rates are low because “money” was flooding into the market. Also because manufacturing in the USA is such a small part of their economy, and absent consumables price increases wage increases remain small.
It’s interesting that people can agree on facts but have divergent views on outcomes. The sooner the financial system crashes, the easier it will be to recover.
‘The sooner the financial system crashes, the easier it will be to recover’
truly clueless comment….there are clueless people on THIS website…imagine the people at large…I thing CTG is right…there might be 7000 people in the world that grasp how serious, how unsolvable this predicament is and how it will be over in the very near future…
Not 7000 but 700 the max or even 70. The rest thinks we can still farm, have BAU lite, walk to work, new world order, one currency, etc
So true….
Day after day we try to undo the indoctrination — the ignorance — the stu—pidity — the delusions — posting facts and logic …
And still there are so many people on FW who do not want to or who cannot get it.
And these are people who are curious…. who actually usually do get the oil part…
Other than those who are fighting to keep BAU alive…. I doubt even 70 are fully aware of the grim situation.
One cannot help wondering if there are any people outside of FW and the highest offices — who understand – or could be made to understand.
I wonder what John Key is doing this evening.
“Why are interest rates so low?” – I think the interest rates are a reflection of how much “energy profit” there is per unit of fossil fuel extracted. With zero interest rates there is essentially no overhead left in the system due to diminishing returns on the use of finite resources.
Basically what low to zero interest rates is telling us is that Industrial Civ is no longer profitable….
“Why are interest rates so low?” – I think the interest rates are a reflection of how much “energy profit” there is per unit of fossil fuel extracted.”
Interesting point(s). But if true in some way, would we ever see a real spike to higher interest rates to the reflect the risks of default, as Gail suggests?
Maybe the system breaks differently in a diminishing energy regime; the central banks (continue to) print, we continue to collectively avert our eyes, we get negative interest rates, until the excess digital IOU’s are extinguished. (Nod to Bruce E’s comment above.) Then the system freezes in some way. And/or riots erupt.
Yes, it is probably all a bit academic at this point.
You are right. Perhaps what happens is that banks stop offering loans to almost everyone, because they can see that the have a need for a high “risk loading,” but there is no way that the companies that would need to pay this risk loading can actually afford it.
Right.
Specifically, Central Banks buy debt, typically at the rate of ~$100Bn per month. Let’s say the first $100Bn was offered at 4% interest and was entirely sold out. So the next $100Bn is offered at 3% and so on.
This is Central Banking. It doesn’t have to make sense. In the short to medium term it has nothing to do with energy prices, except that bets on shale oil production become cheaper to finance. It’s only when interest rates rise, or production falls that these things matter.
Gail; Another great post by you. You are my hero. I assume you have contact with politicians at the state and federal level. At least I hope you get to interact with them. Do they ever show any interest in your observations about the energy/economy situation? We just had a big election. I can’t recall any politician at any level from president thru congressmen showing any awareness of or interest in the finite nature of our resources. They don’t seem to be aware that it is coal, oil, and natural gas, that has allowed the earth’s population to increase to 7 billion+ people. Climate change is a minor problem compared to the coming world wide energy shortage. Man has gone thru the “stone age”, the “bronze age”, the “iron age”, and has now ascended to what I feel is the “hydrocarbon- carbon age”. I fear to think what will come next. I’m afraid it could be a rather rapid descent heading back to an earlier “age”. Gail, do you find that most people confuse “energy” and “technology” and consider them to be interchangeable? Do you ever worry about the future of mankind. It looks so bleak to me. It makes me sad.
Gail, truly another stimulating article. PS: I enjoyed the photos and comments you posted on your recent Asian trip.
I am afraid that I don’t have much contact with politicians. Most of them would like to stay as far away from the topic as possible. Or they would like to equate wind and solar with perpetual motion machines that will save us.
I do think that people confuse energy and technology. Or they don’t think about the problem at all. The people assume that “someone” will fix our problems, as has been true in the past.
The future of humans on Earth doesn’t look good. I think it is fairly clear that our universe, and all of the laws of physics that it uses (very important!), were created by some force, which we could very well call “God.” Whether this God cares about us humans on Earth is a second question. I would prefer to err on the optimistic side. I have seen very many things work together for good in my own life. Even the fact that interest rates were raised to a very high level in 1981 is one of the strange coincidences that has worked together for good. Self-organization allows these coincidences to happen.
Very many religions of the world claim some life after death. This couldn’t be in this universe. Afterlife, if there is one, may very well not follow any of the scenarios that major religions propose.
An extensive new scientific analysis conducted by the Former Chief Economist Michael Jefferson at Royal Dutch Shell published in Wiley Interdisciplinary Reviews titled “A Global Energy Assessment 2016” : says “that proved conventional oil reserves as detailed in oil industry sources are likely “overstated” by half.” & “Punt bluntly,the standard claim that the world has “proved” conventional oil reserves of nearly 1.7 trillion barrels is overstated by about 876 billion barrels. Thus, despite the fall in crude oil prices from a peak in June 2014, after that of July 2008, the “Peak Oil” issue remains with us. (Jefferson 2016)
http://onlinelibrary.wiley.com/doi/10.1002/wene.179/pdf
http://imgur.com/a/BqLQN
Now, production of LTO in the USA is declining and global oil production is as well. New oil discoveries have reached a 70-year low, which does not bode well for future production.
(Murray 2016)
https://link.springer.com/article/10.1007%2Fs41247-016-0013-9
http://imgur.com/a/8k4Sy
Right. Except that this article was written during the “dip” in oil production. https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=W
Yes but as you can see t they are still going to come up short of the peak reached during 2015. And I doubt that peak will ever be passed unless they figure out a way to pump more shale by digging less holes.
I agree. It would also help if the economy could come up with a whole lot higher price. $200 per barrel oil would suddenly make more marginal resources financially viable.
I share the individual fear of “peak economy”. But I also realize that to bring down carbon emissions, and ration the current rate of resource consumption, the economy has to slow down further and faster. In other words, the ecological and resource impacts of continuing should take priority over economic ones of removing artificial money support. As said in the article, keeping interest rates low puts off the evil day to have a real reckoning with ecological and resource conflict, yet makes the eventual crash much more real, that is coupled to accumulated pollution, resource depletion, and biosphere destruction. What is better for the biosphere post-crash, a premature economic crash or a delayed one. Life is no longer just about us.
Our earth and its biosphere seems to be a dissipative structure as well. Thus, it tends to dissipate more and more energy before it collapses. This, in itself, pushes us toward climate change, etc. If human population disappears, then the dissipative ability of the Earth drops way back. I presume this means that a new self-organized version of the earth and its biosphere takes place, at a much lower level, dissipating less energy.
We can have our idea of what is “best,” but it is not at all clear to me that this coincides with what physics determines is “best” for the Earth and its biosphere. As much as we would like to control the situation, I don’t think we have much control over it.
I prefer to Live Large Longer… LLL…. mainly because I enjoy life… but also because when I am gone … I don’t give a F789 what comes next… the earth could turn into a giant fire ball or a gray hunk of dead rock for all I care…
LLL
APATHY IN NZ+++++PUNK LIVES
4u FE
And then there were all those people who admonished my good self … and more so the good Madame Fast … for not breeding.
The endless urgings… it’s the most wonderful thing you can ever experience… (thanks but no) …. come on it’s great (no thanks) …. you don’t know what you are missing out on (uh… I think i said no thanks)…. it’s your duty as a woman (please … f789 off)
Too bad about the kids and the grand kids… big mistake there… big big mistake…
Now the breeders pay the price for their ignorance, delusion and selfishness.
http://www.personal.psu.edu/afr3/blogs/siowfa12/crying%204.jpg
So you see — I am in a position where I just do not give a f789. It’s like crushing an ant … or a fly… it does not matter.
I could imagine a Donald Trump that thinks like you. I mean imagine if DT got the word that he was dying….had say about 6 months to live, or perhaps he doesn’t need to be told that.
He could continue to live large or even larger and explore all his presedential megalomaniac limits, because “He doesn’t give a F789 what comes next”. He wouldn’t care “if the Earth turned into a giant fireball or a grey hunk of dead rock”. Yep nice attitude and terrific example to set Eddy, everyone should think and behave like you. It’s called the FYJIOK attitude.
Hey – don’t pick on me just because I had the wisdom not to breed….
after reading this article it remind of one thing only central banks want
push it to the limit
https://youtu.be/9D-QD_HIfjA
btw this was a great movie about american dream glorifying through
wrong ways
Central banks want to keep the system from collapsing–except when they decide to sell the securities they previously bought. Then they reverse the prior benefit they gave. Interest rates rise.
Thanks Gail, seems part of what your saying is CB’ers are idiots, but wouldn’t they reverse course when their moves make things worse?
It’s my understanding the CB’s will always print rather than spiral, but I in no way understand the mechanics that system.
Part of their problem is that they are running out of securities to buy. No one would consider selling them high-coupon bonds, for example, and they have already bought up a significant share of the low coupon bonds.
If the CBs actually reverse course, I am afraid it would be too late before they figure out that they were very wrong.
Yikes, thanks 😉
This was always the plan…
https://socioecohistory.files.wordpress.com/2010/08/helicopter-ben_bernanke.jpg
If “helicopter cash” is the plan then BAU will likely end in an inflationary collapse.
Assuming the cash gets back to consumers.
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Dear Gail, Where does the use of fiat currency fit into your equations, or does it? After the gold window was closed in 1972 (?), prices shot up. I wonder, what would the industrial nation’s economies look like under a gold standard? To account for all the paper assets, James Rickard’s thinks gold needs to be priced at $10,000 an ounce. If paper assets were backed by gold – at the right price – would that make any difference in how our economy functioned? I realize the main culprit for our dim future is ERoEI, I just wonder if a gold backed currency would have resulted in a different outcome.
Speaking of outcomes, one of your first comments was that raising interest rates now is “frightening.” Why do you say that? What scares you? What are the domino effects?
Basically we never would have gotten this far with gold. The ability to print has been the key to keeping the system afloat.
The different outcome might have been WW1 would have ended sooner in a draw that would have stifled industrial growth.
Gold truly is a barbaric relic….
Fiat currency is a form of debt. Tying it to the gold standard forced it not to rise very fast. This becomes a problem when the economy grows at least partly because of rising debt. The rising debt allows energy prices to rise, and this is what allows extraction.
Regarding why rising interest rates are a problem, they make the cost of buying anything on credit (such as houses, cars, and factories) higher. As a result, fewer of them are purchased. Businesses making things purchased using credit lay off workers and reduce their production of these items. The price of energy products and of other commodities drops, because there is less “demand” for them. Debt defaults rise, because of the layoffs. Business profits fall, because of lack of “economies of scale.” The situation looks like the Great Recession. If enough banks fail, the whole system seems likely to collapse.
Gail stated: “If enough banks fail, the whole system seems likely to collapse.”
The initial response to bank failures would be (I expect) similar to what happened during GFC (more helipcoper cash). Of course, this will lead to other problems like inflation.
But it buys time.
Right. I hope those in charge figure out how to buy time.
You refer to the Nixon shock in 1971
https://en.wikipedia.org/wiki/Nixon_shock
If the USD gold standard had been maintained, growing US oil imports after the 1970 peak would have been limited by gold production
Right.
Great post Gail as usual.
I love the “excess equity”. Is that an Oxymoron?
I guess not in a system driven by debt rather than equity. Equity is the enemy we must kill it.
Love it.
Regarding “excess equity,” when asset prices rise (pumped up by falling interest rates); debt levels stay the same. These asset prices could be homes, farms, or stock prices. Even bond prices rise, as interest rates fall. Subtracting the fixed debt from the new higher “value” of these assets, we get excess equity. It is possible to spend this excess equity, and buy more stuff, pushing the economy forward.
This is very strange, but very much the way the system works. It is very much what was happening in the early 2000s, after Greenspan reduced target interest rates.
When interest rates rise, asset prices fall and the reverse phenomenon takes place. This makes the whole system head toward collapse, unless there is a very strong push toward growth as there was in the 1970s.
Agreed. Net sum gain. Equity growth absorbed by debt growth absorbed by equity growth absorbed by debt growth. And we thought perpetual motion machines didn’t exist. The only thing missing is consumptive growth. Which is real so when that contracts the game doesn’t work. Or we might say the system closes.
Hence instead of spurring economic activity QE just inflated assets. What is that really telling us?
We’re past peak economy.
So true JT.
Oops! This is a concern.