The Next Financial Crisis Is Not Far Away

Recently, a Spanish group called “Ecologists in Action” asked me to give them a presentation on what kind of financial crisis we should expect. They wanted to know when it would be and how it would take place.

The answer I had for the group is that we should expect financial collapse quite soon–perhaps as soon as the next few months. Our problem is energy related, but not in the way that most Peak Oil groups describe the problem. It is much more related to the election of President Trump and to the Brexit vote.

I have talked about this subject in various forms before, but not since 2016 energy production and consumption data became available. Most of the slides in this presentation use new BP data, through 2016. A copy of the presentation can be found at this link: The Next Financial Crisis.1

Slide 1

Most people don’t understand how interconnected the world economy is. All they understand is the simple connections that economists make in their models.

Slide 2

Energy is essential to the economy, because energy is what makes objects move, and what provides heat for cooking food and for industrial processes. Energy comes in many forms, including sunlight, human energy, animal energy, and fossil fuels. In today’s world, energy in the form of electricity or petroleum makes possible the many things we think of as technology.

In Slide 2, I illustrate the economy as hollow because we keep adding new layers of the economy on top of the old layers. As new layers (including new products, laws, and consumers) are added, old ones are removed. This is why we can’t necessarily use a prior energy approach. For example, if cars can no longer be used, it would be difficult to transition back to horses. This happens partly because there are few horses today. Also, we do not have the facilities in cities to “park” the horses and to handle the manure, if everyone were to commute using horses. We would have a stinky mess!

Slide 3

In the past, many local civilizations have grown for a while, and then collapsed. In general, after a group finds a way to produce more food (for example, cuts down trees so that citizens have more area to farm) or finds another way to otherwise increase productivity (such as adding irrigation), growth at first continues for a number of generations–until the population reaches the new carrying capacity of the land. Often resources start to degrade as well–for example, soil erosion may become a problem.

At this point, growth flattens out, and wage disparity and growing debt become greater problems. Eventually, unless the group can find a way of increasing the amount of food and other needed goods produced each year (such as finding a way to get food and other materials from territories in other parts of the world, or conquering another local civilization and taking their land), the civilization is headed for collapse. We recently have tried globalization, with exports from China, India, and other Asian nations fueling world economic growth.

At some point, the efforts to keep growing the economy to match rising population become unsuccessful, and collapse sets in. One of the reasons for collapse is that the government cannot collect enough taxes. This happens because with growing wage disparity, many of the workers cannot afford to pay much in taxes. Another problem is greater susceptibility to epidemics, because after-tax income of many workers is not sufficient to afford an adequate diet.

Slide 4

A recent partial collapse of a local civilization was the collapse of the Soviet Union in 1991. When this happened, the government of the Soviet Union disappeared, but the governments of the individual states within the Soviet Union remained. The reason I call this a partial collapse is because the rest of the world was still functioning, so nearly all of the population remained, and the cutback in fuel consumption was just partial. Eventually, the individual member countries were able to function on their own.

Notice that after the Soviet Union collapsed, the consumption of coal, oil and gas collapsed at the same time, over a period of years. Oil and coal use have not come back to anywhere near their earlier level. While the Soviet Union had been a major manufacturer and a leader in space technology, it lost those roles and never regained them. Many types of relatively high-paying jobs have been lost, leading to lower energy consumption.

Slide 5

As nearly as I can tell, one of the major contributing factors to the collapse of the Soviet Union was low oil prices. The Soviet Union was an oil exporter. As oil prices fell, the government could not collect sufficient taxes. This was a major contributing factor to collapse. The collapse from low oil prices did not happen immediately–it took several years after the drop in oil prices. There was a 10-year gap between the highest oil price (1981) and collapse (1991), and a 5-year gap after oil prices dropped to the low 1986 price level.

Slide 6

Venezuela is often in the news because of its inability to afford to import enough food for its population. Slide 3 shows that on an inflation-adjusted basis, world oil prices hit a high point first in 2008, and again in 2011. Since 2011, oil prices slid slowly for a while, then began to slide more quickly in 2014. It is now nine years since the 2008 peak. It is six years since the 2011 peak, and about three years since the big drop in prices began.

One of the reasons for Venezuela’s problems is that with low oil prices, the country has been unable to collect sufficient tax revenue. Also, the value of the currency has dropped, making it difficult for Venezuela to afford food and other products on international markets.

Note that in both Slides 4 and 6, I am showing the amount of energy consumed in the countries shown. The amount consumed represents the amount of energy products that individual citizens, plus businesses, plus the government, can afford. This is why, in both Slides 4 and 6, the quantity of all types of energy products tends to decline at the same time. Affordability affects many types of energy products at once.

Slide 7

Oil importing countries can have troubles when oil prices rise, similar to the problems that oil exporting countries have when oil prices fall. Greece’s energy consumption peaked in 2007. One of Greece’s major products is tourism, and the cost of tourism depends on the price of oil. When the price of oil was high, it adversely affected tourism. Exported goods also became expensive in the world market. Once oil prices dropped (as they have done, especially since 2014), tourism tended to rebound and the financial situation became less dire. But total energy consumption has still tended to decline (top “stacked” chart on Slide 7), indicating that the country is not yet doing well.

Slide 8

Spain follows a pattern similar to Greece’s. By the mid-2000s, high oil prices made Spain less competitive in the world market, leading to falling job opportunities and less energy consumption. Since 2014, very low oil prices have allowed tourism to rebound. Oil consumption has also rebounded a bit. But Spain is still far below its peak in energy consumption in 2007 (top chart on Slide 8), indicating that job opportunities and spending by its citizens are still low.

Slide 9

We hear much about rising manufacturing in the Far East. This has been made possible by the availability of both inexpensive coal supplies and inexpensive labor. India is an example of a country where manufacturing has risen in recent years. Slide 9 shows how rapidly energy consumption–especially coal–has risen in India.

Slide 10

China’s energy consumption grew very rapidly after it joined the World Trade Organization in 2001. In 2013, however, China’s coal consumption hit a peak and began to decline. One major contributor was the fact that the cheap-to-consume coal that was available nearby had already been extracted. The severe problems that China has had with pollution from coal may also have played a role.

It might be noted that the charts I am showing (from Mazamascience) do not include renewable energy (including wind and solar, plus burned garbage and other “renewables”) used to produce electricity. (The charts do include ethanol and other biofuels within the “oil” category, however.) The omission of wind and solar does not appear to make a material difference, however. Figure 1 shows a chart I made for China, comparing three totals:

(1) Opt. total (Optimistic total) – Totals on the basis BP computes wind and solar. Intermittent wind and solar electricity is assumed to be equivalent to high quality electricity, available 24/7/365, produced by fossil fuel electricity-generating stations.

(2) Likely totals – Wind and solar are assumed to replace only the fuel that creates high quality electricity. The amount of backup generating capacity required is virtually unchanged. More long distance transmission is needed; other enhancements are also needed to bring the electricity up to grid-quality. The credits given for wind and solar are only 38% as much as those given in the BP methodology.

(3) From chart – Mazamascience totals, omitting renewable sources of electricity, other than hydroelectric.

Figure 1. China energy consumption based on BP Statistical Review of World Energy 2017.

It is clear from Figure 1 that adding electricity from renewables (primarily wind and solar) does not make much difference for China, no matter how wind and solar are counted. If they are counted in a realistic manner, they truly add little to China’s energy use. This is also true for the world in total.

Slide 11

If we look at the major parts of world energy consumption, we see that oil (including biofuels) is the largest. Recently, it seems to be growing slightly more quickly than other energy consumption, perhaps because of the low oil price. World coal consumption has been declining since 2014. If coal is historically the least expensive fuel, this is likely a problem. I have not shown a chart with total world energy consumption. It is still growing, but it is growing less rapidly than world population.

Slide 12 – Note: Energy growth includes all types of energy. This includes wind and solar, using wind and solar counted using the optimistic BP approach.

Economists have given the false idea that amount of energy consumption is unimportant. It is true that individual countries can experience lower consumption of energy products, if they begin outsourcing major manufacturing to other countries as they did after the Kyoto Protocol was signed in 1997. But it doesn’t change the world’s need for growing energy consumption, if the world economy is to grow. The growth in world energy consumption (blue line) tends to be a little lower than the growth in GDP (red line), because of efficiency gains over time.

If we look closely at Slide 12, we can see that drops in energy consumption tend to precede drops in world GDP; rises in energy consumption tend to precede rises in world GDP. This order of events strongly suggests that rising energy consumption is a major cause of world GDP growth.

We don’t have very good evaluations of  GDP amounts for 2015 and 2016. For example, recent world GDP estimates seem to accept without question the very high estimates of economic growth given by China, even though their growth in energy consumption is very much lower in 2014 through 2017. Thus, world economic growth may already be lower than reported amounts.

Slide 13

Most people are not aware of the extreme “power” given by energy products. For example, it is possible for a human to deliver a package, by walking and carrying the package in his hands. Another approach would be to deliver the package using a truck, operated by some form of petroleum. One estimate is that a single gallon of gasoline is equivalent to 500 hours of human labor.

“Energy consumption per capita” is calculated as world energy consumption divided by world population. If this amount is growing, an economy is in some sense becoming more capable of producing goods and services, and thus is becoming wealthier. Workers are likely becoming more productive, because the additional energy per capita allows the use of more and larger machines (including computers) to leverage human labor. The additional productivity allows wages to rise.

With higher incomes, workers can afford to buy an increasing amount of goods and services. Businesses can expand to serve the growing population, and the increasingly wealthy customers. Taxes can rise, so it is possible for governments to provide the services that citizens desire, such as healthcare and pensions. When energy consumption per capita turns negative–even slightly so–these abilities start to disappear. This is the problem we are starting to encounter.

Slide 14 – Note: Energy percentage increases include all energy sources shown by BP. Wind and solar are included using BP’s optimistic approach for counting intermittent renewables, so growth rates for recent years are slightly overstated.

We can look back over the years and see when energy consumption rose and fell. The earliest period shown, 1968 to 1972, had the highest annual growth in energy consumption–over 3% per year–back when oil prices were under $20 per barrel, and thus were quite affordable. (See Slide 5 for a history of inflation-adjusted price levels.) Once prices spiked in the 1973-1974 period, much of the world entered recession, and energy consumption per capita barely rose.

A second drop in consumption (and recession) occurred in the late 1970s and early 1980s, when easy-to-adopt changes were made to cut oil usage and increase efficiency. These included

(a) Closing many electricity-generating plants using oil, and replacing them with other generation.

(b) Replacing many home heating systems operating with oil with systems using other fuels, often more efficiently.

(c) Changing many industrial processes to be powered by electricity instead of burning oil.

(d) Making cars smaller and more fuel-efficient.

Another big drop in world per capita energy consumption occurred with the partial collapse of the Soviet Union in 1991. This was a somewhat local drop in energy consumption, allowing the rest of the world to continue to grow in its use of energy.

The Asian Financial Crisis in 1997 was, in some sense, another localized crisis that allowed energy consumption to continue to grow in the rest of the world.

Most people remember the Great Recession in the 2007-2009 period, when world per capita growth in energy consumption briefly became negative. Recent data suggests that we are almost in the same adverse situation now, in terms of growth in world per capita energy consumption, as we were then.

Slide 15

What happens when growth in world per capita energy consumption slows and starts to fall? I have listed some of the problems in Slide 15. We start seeing problems with low wages, particularly for people with low-skilled jobs, and the type of political problems we have been experiencing recently.

Part of the problem is that countries with a high-priced mix of energy products start to find their goods and services uncompetitive in the world marketplace. Thus, demand for goods and services from these countries starts to fall. Greece and Spain are examples of countries using a lot of oil in their energy mix. As a result, they became less competitive in the world market when oil prices rose. China and India were favored because they had a less-expensive energy mix, favoring coal.

Slide 16

Slide 16 shows the kinds of comments we have been hearing in recent years, as prices have recently bounced up and down. It is becoming increasingly clear that no price of oil is now satisfactory for all participants in the economy. Prices are either too high for consumers, or too low for the producers. In fact, prices can be unsatisfactory for both consumers and producers at the same time.

On Slide 16, oil prices show considerable volatility. This happens because it is difficult to keep supply and demand exactly balanced; there are many factors determining needed price level, including both the amount consumers can afford and the costs of producers. The bouncing of prices up and down on Slide 16 is to a significant extent in response to interest rate changes, and resulting changes in currency relativities and debt growth.

We are now reaching a point where no interest rate works for all members of the economy. If interest rates are low, pension plans cannot meet their obligations. If interest rates are high, monthly payments for homes and cars become unaffordable for customers. Also, high interest rates tend to raise needed tax levels for governments.

Slide 17

All of these problems are fairly evident already.

Slide 18

The low level of energy consumption growth is of considerable concern. It is this low growth in energy consumption that we would expect to lead to low wage growth worldwide, especially for the non-elite workers.  Our economy needs more rapid growth in energy consumption to provide enough tax revenue for all of our governments and intergovernmental organizations, and to keep the world economy growing quickly enough to prevent large debt defaults.

Slide 19

Economists have confused matters for a long time by their belief that energy prices can and will rise arbitrarily high in inflation-adjusted terms–for example $300 per barrel for oil. If such high prices were really possible, we could extract all of the oil that we have the technical capacity to extract. High-cost renewables would become economically feasible as well.

In fact, affordability is the key issue. When the world economy is stimulated by more debt, only a small part of this additional debt makes its way back to the wages of non-elite workers. With greater global competition in wages, the wages of these workers tend to stay low. The limited demand of these workers tends to keep commodity prices, especially oil prices, from rising very high, for very long.

It is affordability that limits our ability to grow endlessly. While it is possible to argue that more debt might help raise the wages of non-elite workers in a particular country, if one country adds more debt, other currencies around the world can be expected to rebalance. As a result, there would be no real benefit, unless all countries together could add more debt. Even this would be of questionable value, because the whole effort relates to getting oil and other commodity prices to rise to an adequate level for producers; we have already seen that there is no price level that is satisfactory for both producers and consumers.

Slide 20

These symptoms seem to be already beginning to happen.


[1] This presentation is a little different from the original. The presentation I am showing here is entirely in English. The original presentation included some charts in Spanish from Energy Export Data Browser by Mazama Science. With this database, a person can quickly prepare energy charts for any country in a choice of seven languages. I encourage readers to “look up” their own country, in their preferred language.

In this write-up, I include more discussion than in my original talk. I also added Slides 13 and 14, plus Figure 1.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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3,812 Responses to The Next Financial Crisis Is Not Far Away

  1. MG says:

    What are the states today? The states are the companies that have less and less energy and need to import workers, as their populations are dying out when they import energy. Or they go bankrupt, when they produce energy that is too costly to produce and sell to other states-companies.

  2. Dennis L. says:

    For the more adventuresome Quigley’s “Tragedy and Hope” is an interesting read. I first came across it in the seventies and am rereading it now. A fellow named Bill Clinton was apparently a student of Quigley and influenced by him according to some reports.
    The relevant question for this blog might be how does civilization go backward without energy; Quigley recognized the effect of coal and oil on the course of civilizations as well as democratic weapons effect on autocratic rule as compared to specialist weapons. Hint, specialist weapons seem to be a powerful tool for the powerful.

    Dennis L.

  3. Fast Eddy says:

    I would like to declare July 16th an International Holiday — for it was the day that G l obal War min ng was Proved to be a Hoax.

    The hundreds of billions of dollars wasted on this hoax can now be put towards real problems — clean fresh water seems to be a real problem — maybe we could focus the funds on helping with that….

    On this day going forward what is going to happen is that at 11pm across he planet everyone must turn on every light in the house — run the washing machine – the dryer – the hairblower — the stove — the vacuum cleaner — fire up all vehicles…

    As a tribute to BAU. We need to let her know we appreciate her.
    Burn Some Coal!

  4. Fast Eddy says:

    This is what happens when people believe so passionately in something that is fake…

    We get tax payer money going towards other fake things that supposedly solve the fake problem of us supposedly boiling ourselves to extinction.

    We get EVs – which actually spew more carbon than petrol cars

    Try convincing a Green Groupie that EVs are really really bad for the environment — you’ll get a a taste of what it feels like trying to explain to a cl imate gro.upie that burning fossil fuels has very little impact on the environment

    We get solar installations which generate almost no net power over the life of a panel — and which require that a separate generation system be built to provide power when the sun is not shining (and which has to be keep humming along in the background because it cannot be turned on an off like a light switch) — resulting in a massive nett negative from the panels….

    Try convincing a Green Groupie that solar panels and windmills are really really bad for the environment — you’ll get a a taste of what it feels like trying to explain to a cl imate gro.upie that burning fossil fuels has very little impact on the environment

    A circle jerk of fake…. fake problem — fake response…. fake fake fake….

    • That is quite the proposed rebate plan. I hope the governor has the good sense to veto it.

      • Mansoor H. Khan says:

        But then maybe not. We need growth to keep the financial system alive.

        • assuming you’re not joking—-always difficult to decide on here—-

          you cannot have genuine growth without energy input, which, in terms we understand, means burning oil coal and gas to create employment. The rate and volume of burning must increase year on year to provide % growth, which means in effect:

          that we must go on finding fresh energy sources to keep ourselves employed,

          pay ourselves wages,

          spend those wages to buy stuff,

          which requires more energy to produce

          which we must continually rip the earth apart to find to maintain the function of ”the economy”

          there is another way of course, instead of the messy business of finding energy resources, we borrow or print money, pass it out among the gullible majority, who then spend it, not realising that cash without energy backup is ultimately worthless, and the ”economy” goes into self destruct mode very quickly

          • Well, often times throughout history, the growth impulse (and stagnation or fall) is not universal, rather scattered into variety of regions, enclaves, at the same these forces going opposite directions. Similarly as relative position of societies faced in past decades underwent opposite trends, stagnating/falling West, rising East.

            Granted and it’s understood the precarious situation of today, we don’t have even ~20-30% of pop in agriculture as fall back option. The interconnections is on highest level, e.g. German or Japanese machines can’t be completely serviced in the destination place of these exports etc.

            Nevertheless, in term of trajectory, we are likely not there yet, when there is ~75% of UKs pop on very limited physical direct ration distribution points (i.e. not in form of credit or benefits as of today) and US and other big ones disintegrate into more regional coherent blocks, no aid provided to the ~6B (7.5B – 1.5B) peoples anymore, well that’s a serious threshold by which true advanced collapse stage might be measured. And there will be likely a response of reorganization effort attempt to it as well, i.e. still not definitive global spanning collapse of same intensity guaranteed.

          • Mansoor H. Khan says:

            ok. got it.

            The financial system only needs “nominal” growth not “actual” growth to survive.. Only actual growth requires real stuff. Of course, this means inflation fills the gap. But we are talking about keeping the financial system alive. This would probably buy us time. How much more time? This depends on lots of factors.

            • blow into a balloon

              the balloon inflates, the balloon gets bigger—but you haven’t actually got any more rubber content

              but you keep blowing anyway, because big round balloons look so much better than flat deflated ones. And if your job is balloon inflator in chief, (POTUS maybe?) then you keep on blowing because your job (and ego) depends on it.

              If you could add material rubber to the balloon structure while it was being inflated, then you could keep blowing into the balloon forever.
              Unfortunatelty that isn’t possible.

              Sticking money on the balloon will have no effect on the ultimate outcome.

              so you have a choice—let the balloon go, so it will zap itself around the room and fall to the floor—
              or keep blowing till it explodes.

              messy either way.

  5. Dennis L. says:

    What happened to the ice at the north pole and the ice sheets in Antarctica?
    The earth is a fairly large place, are all measurements of the same significance or are phase changes relevant? Ice melting is a phase change.

    Dennis L.

    • Tim Groves says:

      Not a lot of people know this as it isn’t broadcast on CNN, but the Danish Meteorological Institute have now issued the June Arctic sea ice data, which shows a steady recovery in extent since the low in 2010.

      Significantly, this year’s extent of 11.52 million sq km is greater than in 2006, which was 11.50.

      Moreover, temperatures across the Arctic have been consistently below average since the end of April.

      And with the melt season nearly at an end, the Greenland ice sheet has been growing at close to record levels.

  6. Hm, Finland, another human enclave not exactly keen on sync dying act properly overnight…, lolz. Apart from the title, the article deals also with underground network of civilian bunker infrastructure, interesting..

    ps bit of irony, Fins contracted gen3+ NPP (incl fuel deal) from Russia recently, preceded by two smaller reactors few decades before..

    ps2 but most importantly do remember “it’s all gibberish”
    – according to our local expert in stuffing containers

    • David F. says:

      “military exercises” sure, all of the biggest armies conduct such training.

      Russia has a leader who needs to appear strong.

      I’m sure the Fins are not worried about a Russian invasion.

      IF they are, they are paranoid.

  7. David F. says:

    another day without The Collapse.

    oh, well, maybe tomorrow.

    • Bergen Johnson says:

      Maybe a whole bunch of tomorrow’s. Fact is we don’t know. That’s the one thing no one seems to be able to pinpoint accurately and meanwhile not only years but decades keep on passing as the predictions just keep on coming. It’s a more flexible and corrupt system than most appreciate. That corruption works both ways; for us and against us. It increases the wealth divide but also finds ways to massage the numbers so there really isn’t anything too cataclysmic occurring, so on down the road we go, kicking the can all the way and when it folds no one really knows.

      • David F. says:

        yes, the Elites/Banksters/Billionaires do NOT want the “system” to collapse.
        We saw this in 2008/2009 when they threw everything they had at the “crisis” and the result was a temporary 5% hit to GDP.
        Sure, “next time” could be worse, but a 10% or 20% decline in GDP is not The Collapse.
        Indeed, periodic recessions may actually reduce the chances of The Collapse.

      • DJ says:

        When we know when the collapse happens, it will happen the next second.

    • Fast Eddy says:

      I’m hoping for a few more years… it can’t go on for another decade… can it?

      The joy the bliss of that would be overwhelming

      • Cliffhanger says:

        No way possible we make it another decade. We have worldwide oil shortages coming in the next few years Just wait till those shortages hit the world economy, the tide will come in and we will see who is wearing a bathing suit.

        • Cliffhanger says:

          Oops. Excuse me, I meant the tide will go out. LOL

        • David F. says:

          Mastermind, er, I mean Cliff…
          my crystal ball says we have decades to go…
          I’m sure you’ve heard of “recessions”…
          by the end of the century, after a bunch more recessions, the world may look like The Collapse, but I don’t see it coming in a hurry…
          but maybe your crystal ball is better…
          I doubt it, but we shall see…

          • Fast Eddy says:

            The thing is…

            We have had plenty of recessions…. and as we know …. if the CBs just stand back and do nothing a recession will turn into a deflationary death spiral…

            So CBs do not just stand back — the charge in with stimulus programs — the broadest stimulus plan involves the reduction of interest rates….

            Unfortunately we are in a position where the CBs have dropped interest rates to near zero — and they have rolled out other stimulus that is unprecedented — auto loans to bums — dodgy mortgage loans — massive student loans that won’t get paid back…

            Essentially they are in the process of throwing the kitchen sink at this economy — trying to fend off a recession

            Because they know that with interest rates at zero — their big gun used for bombarding recessions — is empty. There are no shells left.

            So they are fighting like mad dogs to keep global growth on track……

            As we can see from US retail, auto and restaurant numbers — their efforts are starting to fail…

            At some point we will enter a recession —- and I do not think there will be a way out.

            The deflationary death spiral will play out…. the centre will not hold.

            And the electricity will go off – permanently.

            Decades away? That would be nice…

            Korowicz talks about key pillars of the economy — if even one breaks she all goes….

            The auto industry is a pillar — and despite record rebates sales are falling … what can the Fed do to stop the fall? Do they offer even larger rebates – to the point where they lose money on every car sold? That might work for Tesla – because they sell almost no cars… but when you sell millions… that business model will fail….

            Humpty is going to come off that wall…. come hell or high water…. just a matter of what causes him to fall….

            • xabier says:

              There was an interesting article on the Spanish Oilcrash blog, an insider view by an engineer at a factory run by one of the German car makers. He feels it’s all getting far worse than he thought possible, and far more rapidly than he ever imagined it might: lots of internal struggles, lies and unconvincing reassurances from head office, and a sense of doom – expecting the plant to close in the next few years. One might call that a collapsing pillar…… certainly a shaky one.

            • i1 says:

              Remember President W sending everyone cash? I can’t wait, it’s gonna be terrific!

            • Greg Machala says:

              There is something uniquely different about the collapse of 2008 and the recessions that preceded it. All one need do is look at how much is being backstopped by the FED. It goes up like a hockey stick after 2008. That never happened in prior recessions.

            • Fast Eddy says:

              I distinctly recall sitting on a pile of dry powder in 2008 because I was convinced that a crisis was coming and the HK property market was going to blow out… as it did by 70% in 1997 during the Asian crisis…

              The market did start to tumble by 20% or so… and I was licking my chops…. but then AHHHHH … it turned on a dime – see the arrow Quantitative Easing… by rights that market should have shattered….

              Funny thing is I was/am mocked for getting it wrong … yet I do not recall those who ‘got it right’ explaining to me that the CBs were going to print trillions which was going to drive the markets higher… now is the time to buy ….

              Alas all was not lost … dry powder = gold bought at $700+ that went to $1800+ … at which point I parted with a large chunk of the barbaric metal.

              Carrying on from your point…. QE drives the market — until it no longer drives the market…..

              It’s like running a horse to exhaustion — when he collapses you stick him with adrenaline and he gets up and runs some more … but he eventually falls to the ground and dies.

            • timl2k11 says:

              Maybe don’t use imgur. I have no idea what that is a chart of.

            • Fast Eddy says:

              It seems that Google images is embedding the images in that link …. no doubt for the purpose of selling us more ads….

      • Greg Machala says:

        I agree FE. What is coming is going to be hell on Earth. I would be elated if we had another decade left of industrial civilization.

        • Fast Eddy says:

          And then there are those who want BAU to end asap — because their Great Adventure begins.


          It would be priceless to be see the reaction on the face such people a week after the beginning of their Great Adventure….

    • Name says:

      No collapse on Sunday, that’s for sure.

  8. David F. says:

    A thought that I want to throw out to those with backgrounds in economics:

    Isn’t every debt someone else’s credit?
    If the world holds 200 trillion in debt, don’t others hold that 200 trillion as assets?

    • When people of businesses take out loans, to a significant extent, banks and bondholders hold that debt on their balance sheet as an asset. If the value of the house or car or share of stock or mine that was used as collateral for the loan drops greatly in value, the loan may very well be uncollectible. The owner of the house or car or share of stock or mine will have a problem; so will the bank or the person/organization holding the loan based on that collateral, because the debt may become unpayable.

      If a student takes out a loan, the “asset” (the hoped-for future payments from the past student) appears on someone’s (perhaps the government’s) balance sheet. If the former student gets a good enough job, he can pay back the loan. Otherwise, the asset doesn’t mean much. The loan will have to be written off.

      Of course, when those who took out the loans default on that debt, we have a big problem. Banks can fail, unless there is some way that governments can bail them out. Governments may need to raise taxes, if they were depending on debt repayment for revenue.

      Some of the debt relates to derivatives. Perhaps someone made a bet the interest rate relativities did one thing, and they did something else. Or someone made a bet that the US dollar would rise (or fall) relative to some other currencies, and the situation worked out differently. Often, a small amount was paid for these derivative contracts. There will be some instances where there are offsetting contracts, but not always. It seems to me that if there are rapid large changes in interest rates or currency relativities (or both) there could be some fairly large derivative losses that would look like defaulting debt, but there would not really be an asset that anyone could collect against.

      A defined benefit pension plan may owe you money, based on the provisions that were part of an employment agreement. One likely reason that the money won’t be there when needed is because the actuary made an optimistic estimate regarding future interest rates. There may be other contributing factors–the business (or union, or government organization) may not have made needed contributions to the pension plan, in part because laws were sufficiently lax that these payments were not required (or allowed a calculation assuming interest rates would suddenly rise in the future). The person who is supposed to get the pension may think that there is a debt to him, but there is likely no one who is a financial position to pay the pension amount. The US federal government has a Pension Benefit Guaranty Corporation, but it, in fact, has virtually no money.

      • David F. says:

        thank you, Gail. That is a lot for me to ponder.
        we’ve made it this far since The Oil Drum days, yes?

      • Jan Steinman says:

        A defined benefit pension plan may owe you money… One likely reason that the money won’t be there when needed is

        Another Bad Thing that happens is when predatory companies take over well-managed, employee-focused companies, such as those that tend to have defined benefit plans.

        One is reminded of when Enron took over Portland General Electric, which had a defined benefit plan with a diverse portfolio. One of Enron’s first actions was to require PGE to invest all its retirement funds in Enron stock. Enron soon went belly-up, and people who had faithfully worked 40 years or more for PGE were left with nothing. One day, they were collecting 70% of their employed pay, the next day, it was whatever they could get from Social Security. Some of these people then actually lost their houses, as they could no longer make mortgage payments.

        Don’t have the link, but this sad tale was told in the Oregonian over a series of instalments when I lived in the area.

      • Thanks Gail, but you described nature of a particular system, which as we know evolved up to this day with all its cross dependencies, legacy paths of decision making, stored up problems etc.

        In times of great real or perceived deep threat – crisis, societies tend to reorganize profoundly both towards chaotic and eventually specific vector, perhaps keeping some limited social tools from the prior one. The most interesting thing we should perhaps pursue here in discussions is as to whether in the relatively near future such realignment comes at what costs to complexity/well being/life loss etc. Where this process might start, where could be the competing enclaves identified, which one is more prone to global JIT complexities failure etc.

        This seems to me being avoided on purpose by many, especially those with narrow argumentation insight and scope..

        • When there are fewer goods and services to be shared, it becomes a major problem to divide the ones that are available up amount the various people/businesses/governments who all would want to have part of them.

          Debt is supposedly one of the claims on those resource. I would argue that in any reasonable system, the people who produce the goods and services need to have the first claim on the goods and services produced in times when there are not enough to go around–otherwise, the workers won’t be able to continue producing them. So in any reasonable system, debt holders find themselves left out. (So do holders of shares of stock.)

          • Thanks, I’m glad you identified this so clearly now, yes, I’m afraid we are going to snap into system in which the first in line claims on resource or production would be largely reconfigured in favor of the collective, quasi monarch/feudal setup etc.

  9. Cliffhanger says:

    -Reject ideology, trust your intuition, avoid “pied pipers”…

    • David F. says:

      my intuition tells me that The Collapse is far less likely than a century long series of recessions.
      but hey, that’s just my educated opinion.

      • Fast Eddy says:

        Of all the issues related to the discussion of a finite world — the one I am the most certain of is that when growth stops — if it cannot be kick started again in short order —- BAU will collapse in its entirety.

        One could point to dozens of charts to demonstrate this — but remember what was happening around the time of the Lehman blow out with jobs — each report was like a stab in the heart of BAU with massive layoffs happening….

        It primary school diploma would be sufficient to ensure that someone could understand that if this was turned around — this would have quickly turned into a tidal wave swamping the economy.

        The CBs are calming the ocean with stimulus — at some point this will no longer work — and the mother of all tidal waves is going to build — and nobody will be able to stop it

        • David F. says:

          you could be right.
          more likely, I think smaller weaker countries will collapse and that will leave more resources for the bigger stronger countries.
          so world growth will be over, but not every country will take the hit.
          but we shall see, won’t we?
          meanwhile, The Collapse didn’t happen today!
          see you tomorrow!

          • Fast Eddy says:

            Definitely – Venezuela could collapse into total chaos — no electricity — no food — and BAU could stagger onwards.

            Too many Venezuelas though — and that is big deflationary pressure …

            Or one key economy goes down — and it takes the financial system down.

          • Tim Groves says:

            I am not in any way qualified to talk about economics, but here goes. As I see it, the economy is a manmade structure pumped up against economic gravity through the combined efforts of billions of people producing, consuming, investing, saving, spending, serving and providing and under the control of various system operators and regulators.

            If and when the economy stops expanding,money stops flowing around and a round and it gets tight, so people tighten their belts and cut down on what they regard as discretionary or unnecessary expenses. To the extent that Peter’s income depends on Paul’s spending, this makes times tight for other people, who are then forced do the same thing.

            The result is deflationary pressure—pressure on makers and sellers and providers to cut prices. This squeezes bottom lines and drives businesses into debt because there are costs involved in staying in business that can’t be squeezed.

            So if deflation continues very long, businesses start going out of business and the economy shrinks. In the modern industrialized interconnected globalized economy, once the shrinking starts, a vicious circle is created that in the absence of intervention from the Central Banks and other system controllers would eventually result in a total collapse.

            How far down the road is “eventually” and how absolute is “total”? Depending on the amount of resistance that could be mustered to oppose it, I can imagine a collapse playing out over several years and I can also imagine a collapse playing out over a couple of weeks, but with the same result that it washes our society and civilization away as effectively as a giant tsunami on a Pacific Island or a horde of barbarians crossing the steppes.

            But of course, the CBs and the other responsible folks in charge would never allow a deflationary collapse to pick up enough momentum to go into free fall collapse, while it was in their power.

            • David F. says:

              I mostly agree.
              Though as you write “I can imagine a collapse playing out over several years and I can also imagine a collapse playing out over a couple of weeks, but with the same result…”
              so also I can imagine it playing out over several decades as well.
              Time will tell.

            • Fast Eddy says:

              Nice summary.

        • Wow! That is quite the graph.

          • Cliffhanger says:

            That is because each percent on the chart makes up almost an entire inch in space. Notice the drop from 2008-2009 is only around 2%. Spoiler alert!

            • Fast Eddy says:

              You make it sound as if each % point is not a big deal…


              September 2008 – 433,000 jobs lost
              October 2008 – 489,000 jobs lost
              November 2008 – 803,000 jobs lost
              December 2008 – 661,000 jobs lost[2]

              January 2009 – 818,000 jobs lost
              February 2009 – 724,000 jobs lost
              March 2009 – 799,000 jobs lost
              April 2009 – 692,000 jobs lost
              May 2009 – 361,000 jobs lost
              June 2009 – 482,000 jobs lost
              July 2009 – 339,000 jobs lost
              August 2009 – 222,000 jobs lost
              September 2009 – 199,000 jobs lost
              October 2009 – 202,000 jobs lost[3]
              November 2009 – 64,000 jobs created[4]
              December 2009 – 109,000 jobs lost[4]

        • Bergen Johnson says:

          It’s an interesting graph if one is interested in what happened up until 2010, but what about until now?

          • Fast Eddy says:

            I think the point was to demonstrate how quickly things can unravel when they unravel…

            Since 2010 trillions of dollars have been spent on stimulus – interest rates dropped to zero — the job market is still moribund with mostly part time jobs created — we are basically suspended in mid air over a cliff.

            And when the next crisis hits — the job market will collapse again — and there will be no stopping it this time

            Interest rates are at record lows — trillions are surging through the economy

            If you believe the CBs can just keep us suspended with endless money printing then I would suggest you are delusional

            • el mar says:

              2000 the patient was ill, maybe a cold, as it happens from time to time and than became healthy again.
              2008/2009 the patient had an cardiac arrest and was plugged on to a heart-lung-machine.
              This is a final support. Easy to understand if thereis no denial-causing doctrine.
              We are enjoying extra time thaks to CB live support facing sudden death.

              “To cure you they must kill you …


              el mar

          • Cliffhanger says:

            Here is a better Chart FE. trying to figure how many people are unemployed is futile. It’s what the stage magicians call a “Misdirection”. All you have to look at is how many people are employed. And you will see that jobs pretty much peaked around 1999. The years between 2000-2010 the US economy did not create one single net new job at all. This is totally hand to mouth and has never happened history. Even during the 1970’s which was associated with an energy crisis and which most american’s felt was a decade of regression. The economy still added an increase of around 20 percent new jobs. And you need at least on average around one million new jobs a year to keep up with the population growth. The WAPOST wrote an article about this called “The lost decade”. The US economy did not create one new net job in the 21st century until first quarter this year with Trump. So to get back to normal we would need to create a net new 16 million extra jobs somehow. ..

            • Fast Eddy says:

              BAU Liters/Slow Collapsers (BLSCs) need to focus on the big dip in the top right corner…

              When the next crisis comes — and the CBs are out of ammo — that line will not level off …

              It will plunge straight down — to zero.

              But you won’t see a chart of that anywhere — because the MSM will be offline — and you will be fighting for your life.

            • Cliffhanger says:

              Already a fourth of the adults actually employed in the US are paid wages lower than would lift them above the official poverty line .

              And so a fifth of American children live in poverty.

              Almost half of employed adults in this country are eligible for food stamps (most of those who are eligible don’t apply). The market in labour has broken down, along with most others. Those jobs that disappeared in the Great Recession just aren’t coming back, regardless of what the unemployment rate tells you – the net gain in jobs since 2000 still stands at zero – and if they do return from the dead, they’ll be zombies, those contingent, part-time or minimum-wage jobs where the bosses shuffle your shift from week to week: welcome to Wal-Mart, where food stamps are a benefit.


            • Fast Eddy says:

              I am astounded that the economy holds together in light of this horrific job market… you’d think retailers would be in even worse shape than they are reporting — I suppose that people continue to shop on credit…. but what about all the people who are under bridges eating rat…. they don’t buy much…. and there are a lot of them

      • it will be like that

        but collapse is relative to you and yours.

        you lose your job, and its collapse if you cant get another one, but (here in uk at least) there is state support to see you dont fall too far.
        If that happens in Somalia or wherever–you starve to death.

        but ultmately we are all living on energy support, so without it all our lifestyle systems will collapse.

        just at different times in different places

        • psile says:

          Western countries will be the worst affected upon collapse, because they are the most reliant physically and psychologically on the way of life they’ve built and spread to all corners of the world. Poorer places with less investment in the idea of progress as a given may last a bit longer. But all will succumb in the end.

  10. Fast Eddy says:

    I guess Wolf isn’t going to publish this comment …. I see he has responded to a few others so he has seen it…

    The ability of humans to be stewpid MOREons —- is so impressive.

    If they are endlessly told that they can breathe water by the MSM — they would happily agree to let you hold their head under water for 30 minutes….

    Go figure

    Electric vehicles in Hong Kong could be adding “20 per cent more” carbon to the atmosphere than regular petrol ones over the same distance after factoring in the city’s coal-dominated energy mix and battery manufacture, a new research report found.

    Investment research firm Bernstein also claimed that by subsidising electric vehicle purchases, the government was effectively “harming rather than helping the environment” at the expense of the taxpayer.

    “The policy is to encourage drivers to be green, but they are actually subsidising vehicles that create more emissions of CO2 and particulates from power plants,” said Bernstein senior analyst Neil Beveridge.

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