How the Economy Works as It Reaches Energy Limits — An Introduction for Actuaries and Others

Why have long-term interest rates generally fallen since 1981? Why have asset prices risen? Can these trends be expected to continue? The standard evaluation approach by actuaries and economists seems to be to look at past patterns and assume that they will be repeated.

The catch is that energy consumption growth plays a hugely important role in GDP growth. It also plays an important role in interest rates that businesses and governments can afford to pay. Energy consumption growth has been slowing; it is hard to see how growth in energy consumption can ramp back up materially in the future.

Slowing growth in energy consumption puts the world on track for a future like the 1930s, or even worse. It is hard to see how GDP growth, interest rates, and inflation rates can ramp up in the future. More likely, asset price bubbles will pop, leading to significant financial distress. Derivatives may be affected by rapid changes in prices and currency relativities, as asset bubbles pop.

The article that follows is a partial write-up of a long talk I gave to a group of life and annuity actuaries. (I am a casualty actuary myself, which is a slightly different specialty.) A PDF of my presentation can be found at this link: Reaching Limits of a Finite World

 

Slide 1

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Slide 4

After the audience had a chance to answer this question (mostly with yes), I gave my answer: “Yes, indeed, it is possible to build a model that gives misleading results, and not understand the situation.” For example, a flat map works as a perfectly adequate model in some situations. But when longer distances are involved, a globe is needed. A two-dimensional model works for some purposes, but not for others.

Slide 5

The model in Slide 5 is the familiar Supply and Demand model used by economists. According to the model, if Demand increases from D1 to D2, then price will increase from P1 to P2. The rising price, in turn, will allow the quantity produced to rise from Q1 to Q2, based on the upward sloping supply curve S. This model is true in some cases, but it is not always true.

Supply and Demand Are Both Affected by Reaching Limits

As the economy approaches energy limits, lack of sufficient growth in energy consumption affects both Supply and Demand. Diminishing returns leads to high costs on the Supply side. Because of this, the cost of producing oil and other energy products tends to rise.

At the same time, businesses find that they cannot pass on these higher costs to their consumers because the wages of consumers don’t rise with rising energy costs. Diminishing returns acts like growing inefficiency; it takes more materials, more labor, more tax dollars, and more debt to produce the world’s overall mix of energy products, leaving a smaller amount of resources for producing end products (such as homes, cars, and bicycles) that consumers really want.

Persistent high energy costs lead businesses to try to find workarounds to reduce total costs. A major target for cost reduction is labor costs. If some labor costs can be replaced by lower-paid labor from overseas, or by robots, the company can perhaps make a reasonable profit, even with higher prices for oil and other energy products. The catch is new lower-cost labor force does not create as much Demand for goods and services as was available before jobs were replaced by robots or sent overseas. Workers in China and India will buy some goods and services, but the quantity will likely be lower than if the jobs remained in the US, Europe, and Japan.

We end up with a tug-of-war between the high prices that the producers of energy products need and the low prices that the many low-wage workers around the world can afford. Energy products are used in making pretty much everything, including food, homes, cars, and computers. As young people need to live with their parents longer, and as demand moves to lower-waged countries overseas, the lack of buying power tends to pull energy prices down below the cost of production. Energy prices below the cost of production are just as much a product of reaching energy limits as high energy prices!

Peak Oil is Another Two-Dimensional Model

Before we go on, I should probably offer some more explanation. Some of you may have thought that I would be talking about the Peak Oil story today. I consider the Peak Oil story to be another two-dimensional model. It gives some insights, but it really does not give a good explanation of what can be expected as we go ahead. Its emphases on oil and on high prices are both wrong, in my opinion.

Geologists coming up with the Peak Oil model relied on the incorrect Supply and Demand model of economists. They did not understand that both Demand and Supply are affected, as energy limits approach. They also never considered what the energy needs of the economy really are–total energy consumption needs to grow, if enough goods and services are to be produced for the growing world population. Rising energy consumption is also needed to keep commodity prices high enough to keep production from collapsing from low prices, due to inadequate Demand.

The Role of Added Energy

Many of you have heard the saying, “As you sow [seeds], so shall you reap.” In other words, the effort you put in can be expected to correspond to the end product that is produced. This saying is somewhat true if an economy uses only human labor to produce goods and services. For example, if a person digs a ditch for five hours, the result will correspond to effort put in. Increasing the hours of digging to six can perhaps add 20% to the length of ditch that can be dug. (There is the detail that it even takes energy products to make a shovel. Perhaps the example should be digging a ditch with a stick, and thus using only human labor!)

If a person really wants to dig a ditch quickly, he needs ditch-digging equipment and diesel fuel to operate the equipment. The ditch-digging equipment is made with energy products; it also uses energy products while it is operated. If energy consumption per capita is rising, then businesses, on average, can use increasing amounts of energy to increasingly leverage the labor of the workers they hire. This seems to be what leads to productivity growth.

This is why I talk so much about energy consumption per capita, and the importance of falling prices of energy services (including efficiency gains) to encourage the growth in energy consumption. One example of energy services (whose costs need to fall) would be the cost of heating a 1,000 square meter home (including efficiency gains in furnaces and insulation). Another example would be the cost of transporting 100 kilograms of grain 100 kilometers.

Slide 6

In fact, over time, the cost of energy services has been falling. The fall in costs more than offset the growing quantity of energy consumed. Thus, the cost of energy services is becoming a smaller and smaller share of world GDP. This falling share of energy products as a percentage of the world GDP seems to be necessary, if the remainder of the world economy is to grow. If the cost of energy products starts to rise, it will tend to crowd out some of the discretionary goods and services that the world economy has been able to add, as the world economy has grown.

Higher Energy Prices Are Damaging to the Economy; Lower Energy Prices Encourage GDP Growth

Energy needs to be consumed by the system, whether workers dig ditches with shovels or with ditch-digging equipment. If energy is very expensive, it is likely that all that employers can afford is the equivalent of shovels for workers to work with. If energy becomes less expensive to use (including efficiency gains), then it becomes possible to scale up the use of tools using energy, and the economy can expand. As a result, workers can become more efficient, businesses can make more profits, and the government can collect more taxes. The falling price of energy services seem to be the major force underlying GDP growth.

Conversely, if oil consumption growth is constricted by a spike in oil prices, we know (based on the work of Economist James Hamilton) that the US economy tends to go into recession. Higher prices make it difficult for both businesses and consumers to buy energy products. Falling energy consumption is damaging to the economy, because the creation of goods and services depends on the use of energy products.

High Correlation Between World GDP and Energy Consumption

Slide 7

Energy consumption is not mentioned at all on the economists’ supply and demand model (Slide 5), but it is clear that energy consumption is highly correlated with economic growth. There is a reason for this: it takes energy products to make both goods and services. It even takes energy to heat and light an office for workers, and to make and power computers.

Economists tend to miss the connection between energy and the economy because they tend to perform their analyses on an individual country basis. The connection between GDP growth and energy growth is less clear on a country-by-country basis because individual countries can reduce their energy consumption by shifting some of their manufacturing to less developed countries, confusing the analysis. The International Energy Agency has concluded that higher oil prices can be expected to have an adverse impact on the world economy as a whole.

The Economy Is a Self-Organized System Operated by Energy

Slide 8

The reason for the strange behavior of energy prices near limits is because the system is very interconnected. It is a self-organized system that gradually changes over time. New customers are added over time. These customers are often also wage-earners. They decide what to buy based on their own wages, and based on other considerations, such as the prices of competing products and whether inexpensive financing is available.

Businesses make decisions based on what they think customers might want. They also consider products offered by competitors. Governments play a role as well, both in regulation and taxation.

Physics indirectly helps determine prices, wages, and profits, because the economy uses energy to make goods and services. If a rapidly growing amount of cheap energy is available, it becomes easy for businesses to make a profit and raise wages. As businesses grow, economies of scale tend to increase profits. Higher energy prices tend to reverse these beneficial effects.

Oil Prices Are Now Too Low for Many Oil Producers

Slide 9

If you are not familiar with energy price trends, it probably would be worthwhile to take a minute to look at the strange price pattern shown on Slide 9. If you are coming from a financial background, you will probably be familiar with the financial disruptions of 2008, but not the high oil (and other energy) prices of the same period. The steep drop in prices corresponds to the time of major financial distress.

Most United States infrastructure, such as interstate highways, pipelines, and electricity transmission systems, were built in the pre-1970 period, when the inflation-adjusted price of oil was generally less than $20 per barrel. Thus, in a sense, most of the oil prices we are seeing in recent years on Slide 9 are high, relative to historical costs. The question becomes, “How high a price can the economy withstand?” It becomes very expensive to replace a worn-out pipeline built with $20 per barrel oil using $120 per barrel oil.

On Slide 9, prices required by oil exporting countries (such as Saudi Arabia, Venezuela, and Norway) seem to be well over $100 per barrel. Such a high price is needed if these countries are to be able to collect enough tax revenue and also have funds for investment in new fields to replace depleting fields.

On the other hand, the economies of the United States, Europe, and Japan do very much better if oil prices are low. They would prefer prices under $50 per barrel. This is the price mismatch mentioned on Slide 9.

Extended periods of low prices can be expected to lead to two adverse impacts over a period of several years:

  1. Falling growth in energy production. Investment in new fields to offset declining production from existing fields is likely to fall. The big drop in oil prices occurred in 2014, and it is now four years later. Many analysts expect growth in oil production to slow in the next few years, because of inadequate investment. Coal, natural gas, and uranium have somewhat similar problems, with falling prices discouraging reinvestment.
  2. Collapsing governments of oil exporting nations. Governments of countries that export oil are often very dependent on the high price of oil to collect adequate tax revenue. The central government of the Soviet Union collapsed in 1991, after several years of low oil prices. Lack of adequate tax revenue could cause a similar problem today. Venezuela is particularly at risk, but Saudi Arabia and many other countries could follow.

It is ironic that Venezuela reports the highest oil reserves in the world. These reserves can only be extracted if energy prices are much higher than today. This would seem to require higher wages of non-elite workers around the world. If wages were much higher in countries such as India and Nigeria, they could afford goods such as motorcycles and air conditioning, helping push up world demand for energy products.

Slide 10

It is clear that the growth rate of energy consumption simultaneously affects Supply and Demand.

An important point on Slide 10 is the fact that growing debt acts as a helper for energy consumption. It allows consumers to afford goods and services with their monthly wages, and it allows businesses to pay for new tools for workers over the lifetime of those tools. In a sense, debt is the promise of future goods and services made with energy products.

Money is a type of debt. We can print money, but we can’t print cheap-to-produce energy products. Thus, at some point, there can be a mismatch between promises of future goods and services and the quantity of affordable energy products available to create those goods and services. This is part of what is likely to cause debt defaults.

Slide 11

Slide 11 lists some of the things that seem likely as we reach the limits of cheap-to-produce energy supply. I will describe these issues more, later in this talk.

Slide 12

Slide 12 is an outline of the rest of the talk. This post primarily covers Points 1 and 2. Thus, this article relates primarily to GDP growth, interest rates, and asset prices. Slides are shown for Points 3 and 4 as well.

Slide 13

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Slide 14

In recent years, it has become increasingly apparent that the ability of humans (and pre-humans) to cook part of our food supply has had a major impact on our ability to be different from other animals. We could eat a wider variety of foods, and we could get more energy value from those foods. Our bodies could evolve in a very different way. Our brains could become bigger, and our jaws and gut could be smaller.

Slide 15

Even back in hunter-gatherer days, humans were using more energy than similar animals. Now, in the industrial period, we are using 80 times as much energy (=8000/100) as a human-like animal would use, considering the various types of supplemental energy available to us. Some people have described the situation as having 80 energy-slaves for each person. This makes it possible to do tasks, such as farming and digging ditches, in a more efficient way than using sticks as tools.

Slide 16

Besides the usual tools, we have many related ways of using energy, with the goal of eventually providing more goods and services. Energy can be used to organize data on computers. Energy can be used to provide advanced education on topics helpful to growing the economy. If individuals or businesses are paid wages or interest payments, they can use those proceeds to buy energy products, such as a new car, or an overseas vacation. Thus, energy consumption growth affects every part of the economy.

Slide 17

Growing debt is extremely important in growing the world economy. I describe the situation more fully in this article: What has gone wrong with oil prices, debt, and GDP growth?

Technology is what most people focus on, as being the way to move the world economy forward. However, it takes energy products to make the new machines made possible by technology. Without a steady supply of energy products, we cannot maintain existing roads, or the electric grid, or the internet.

Slide 18

Anyone who has purchased a home knows that interest rates are very important in determining what price of home a particular buyer can afford. Here I show a range of monthly payments, for a 30-year, $300,000 mortgage at various interest rates. It is clear that a person can afford to buy a great deal more house at a low interest rate than a high interest rate. If interest only loans are available, costs are lower still.

Slide 19

Everyone who works with interest rates is aware of this pattern in 10-year US Treasury interest rates. The peak in interest rates was in 1981, and there has been a downward trend most of the time since that date.

Slide 20

The interest rates that regulators can easily adjust are short-term interest rates. When these interest rates are increased, they tend to induce recession. There may be a lag in timing. The increase in short-term interest rates in the 2004 to 2006 period seems to have been instrumental in popping the subprime debt bubble and bringing on the Great Recession of 2007-2009. This is my article relating to this issue: Oil Supply Limits and the Continuing Financial Crisis

Slide 21

When energy consumption is growing rapidly, and there are productive projects that can be added (interstate highway system, long distance electric grid, interstate pipelines, first-time telephone service for many people, growing number of trucks and airplanes), then it is possible for the economy to grow rapidly.

In this rapidly growing economy, the economy could easily ramp up long term interest rates without damaging the economy because the underlying growth rate was so high. In a sense, the higher interest rates were analogous to inflation affecting food and energy prices. There was so much growth in demand for goods and services that the economy could afford to pay rising interest rates during the period between World War II and 1981.

Slide 22

The period since 1981 is a period when investments have become much less productive, from a point of view of allowing more goods and services to be produced. Instead, growth is coming from selling more services to each other, and sending more manufacturing to lower-cost parts of the world.

Since 1981, we find ourselves with an increasing amount of old infrastructure that needs to be maintained. Fixing this infrastructure doesn’t really improve productivity. New investments simply keep productivity from falling.

One recent innovation has been the internet. It gives us more information, and it relieves us from the burden of having to use the phone book or go to the library. Thus, it makes us more productive. But in many ways, it is not as important as many earlier inventions, such as the internal combustion engine, the light bulb, and the telephone. There is a temptation to computerize all kinds of data and to expect data mining to solve all our problems. A person wonders what the true cost/benefit is.

Innovations in medicine now allow more 85-year-olds to live to be 86-year-olds and allow more cases of cancer to be cured. But the big changes, brought about by antibiotics and better sanitation, occurred before 1981.

Another growth area has been higher education. The payback is often wages that are barely high enough to live on. How are college graduates who cannot find high-paying jobs going to be able to repay their loans and still get married and have a family?

Admittedly, some investments have been productive. This is especially true when new factories, roads, and ports have been installed in emerging markets. But a large share of recent investments have been aimed at making vehicles more fuel efficient. Or trying to reduce CO2 emissions. These do not really have a payback in lower-cost goods and services.

Interest on debt can only be paid if the economy is truly growing, and thus has a sufficient margin to pay interest with. This seems to be less and less possible outside of emerging markets. I would expect that this is why long-term interest rates are persistently low.

Slide 23

The decline in the ten-year interest rates should make homes more affordable. The long-term decline in shorter-interest rates should make vehicles more affordable. In spite of this boost to the economy, US GDP growth rates have persistently fallen. World GDP growth rates have fallen as well.

Slide 24

There is relatively little storage available for commodities of most types, including oil. As a result, even a small change in demand can lead to a major price shift.

I show in Oil Supply Limits and the Continuing Financial Crisis that the peak in oil prices corresponded to the peak in US debt in several categories, including credit cards and home mortgages. Once US debt stopped rising, the demand for oil fell, and prices dropped precipitously.

Quantitative Easing (QE) by the US Federal Reserve began near the end of 2008. It acted to lower interest rates, especially long-term interest rates. These lower interest rates helped get oil prices back up closer to the level required by producers. But once QE stopped in 2014, prices slid back down. As noted earlier, recent oil prices are far too low for most producers. But they do help stimulate the economies of oil importing countries.

Slide 25

If a business adds debt to expand a factory, this may lead to more wages. The chart indicates that growing non-financial debt does not always lead to higher wages. Sometimes it leads to asset bubbles.

Slide 26

Disposable personal income (DPI) is income that individuals receive, including payments such as Social Security and Unemployment Insurance. This amount is netted out for taxes paid. If we divide DPI by population, we get per capita DPI. This amount is not inflation adjusted; it gives us an estimate of how much incomes have been rising, including payments made to compensate for inflation.

Clearly, there have been huge changes in the growth of per capita DPI over time. Prior to 1981, per capita DPI was rising rapidly, as more women joined the workforce, and as companies gave cost of living raises, in an attempt to keep their employees. In several years, per capita DPI was rising at over 10%.

Families with rapidly rising incomes were looking for ways to spend their new-found wealth. This seems to be at least part of the reason for the high inflation rates of this period. Without this rapid run up in DPI, it is hard to see how the oil prices spikes of the 1970s could have occurred.

Now, the economy has slowed greatly. DPI per capita is sputtering along at less than 4% per year. With this low rate of increase in funds available for spending, it seems like the current economy will not be able to support a big spike in oil prices.

Slide 27

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Slide 28

If the economy is not really growing, it is very difficult to pay interest. This is why a person would expect interest rates to roughly follow GDP growth. Back before 1981, GDP growth was significantly greater than 10-year Treasury yields. Since then, 10-year Treasuries have tended to yield a little more than GDP growth (including inflation). Very recently, the pattern seems to have returned to the pre-1981 pattern.

Slide 29

If interest rates are lower, more people can afford to buy a given house, or a piece of land, or shares of stock. The additional demand tends to bid up asset prices.

Slide 30

This should be clear from Slide 29.

Slide 31

Interest rate assumptions often were originally made when interest rates were higher.

Slide 32

Payments to individuals in a particular year act as a way of dividing up goods and services available in that year. If the share of goods and services going to those who are paid interest rises, it will mean fewer goods and services are available for others. History says that it is the non-elite workers that are most likely to be “shorted,” if there are not enough goods and services to go around.

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Even a decline in coal consumption is a problem, if it causes total energy consumption per capita to fall! Wind and solar cannot possibly make up the shortfall. Also, their installed cost is high, if the cost of intermittency workarounds is included.

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About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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1,217 Responses to How the Economy Works as It Reaches Energy Limits — An Introduction for Actuaries and Others

  1. Rodster says:

    Surprise, surprise !

    “Retail Sales Growth Slows As Fuel Costs Rise”
    https://www.zerohedge.com/news/2018-05-15/retail-sales-growth-slows-fuel-costs-rise

  2. xabier says:

    The final verdict on those recent big art auctions at Christie’s and Sotheby’s is… ‘sleepy’.

    The super-rich are certainly not throwing it around with abandon. The Rockefeller sale in particular was ‘disappointing’.

    Some more staffing cuts will sort that out, I suppose.

    • Smart money do not get thrown into art which does not earn dividends. It was the Japanese investors during 1980s, not knowing the value of art, which created the art boom. Now, people are getting too sophisticated to shell out millions for a dead piece of canvas which does not earn any money and is hard to maintain and protect.

      • TJ Martin says:

        Correction . Smart money ‘ used to ‘ invest in art , antiques , classic cars , wine etc with absolute abandon right up until the end of 2016 … at which point they … including many celebrity collectors . knowing a whole lot more than the average individual does .. started dumping their collections .. initially at hight prices rapidly devolving into bargain basement deals ( relatively speaking ) converting their assets into cash .. rather than reinvesting in either the collector or the financial market .

        That alone should have people thinking twice about depleting their cash reserves while the wealthy ( and the wise like myself ) increase and maintain our liquid ( read cash ) assets

        • Sorry, “smart money/wise wealthy” in the first place means you have already covered most of the necessities of life at such level of affluence, namely: both rural and city residences (usually also globally diversified), Swiss or other additional passport, money and collectibles warehoused at several place globally, stakes in various “recession proof” companies, land ownership with mineral/water rights, not mentioning viable contacts to both centrist political factions going out and populists going in..

          And only then you can play additional games with your “excess cash money”..

          Lolz

      • Think of the process as money laundering. Some people still need a discrete way of doing that.

  3. Third World person says:

    America After a Few Months of 4$ Gas Prices

    • At least the Flintstones would have trained the dino to pull their ‘car’. Why carry a big reptile around when it can do work?

    • maybe now you understand why folks in the uk, with petrol at $7.50, only drive downhill

      • Fast Eddy says:

        Central Otago petrol is well over 2 bucks now… diesel (subsidized) is over 1.60…. that’s 30 cents more than the price I paid in Invercargill when I picked up 2 tonnes of coal in the back of ma 4 bah 4 eco 4000lb eco truck….

        At this rate I’ll bankwupt soon…. me and Elon under a bridge roasting rats…

        I read somewhere a Rayburn can be fitted to burn diesel — I need to investigate…. I also need to work out which would be more environmentally unfriendly – diesel or coal….

        Oh – and I spoke to the Rayburn lady and she recommended that at night putting coal into a plastic grocery bag… and just tossing that into the fire ‘for convenience’….

        She was a bit sheepish saying burning plastic was a bit of a bad look…. but alas — she was not speaking to a Green Groopie …. I told her I was going to use two shopping bags each time … for added strength… + I have so many of these bags laying around because I always ask for double bagging and I put as few things into each bag as I can get away with …. you never know when you might need more plastic bags…. and when BAU goes… forget about restocking….

        https://www.stuff.co.nz/business/industries/103833909/south-island-petrol-prices-climb-nearly-three-times-as-much-as-north-island-figures-show

  4. Nope.avi says:

    Wolf Richter believes that higher interest rates and oil prices will not decrease consumer spending. Wolf Richter believes that higher interest rates and oil prices will only change what money will be spent on; presumably interest and oil.
    https://wolfstreet.com/2018/05/15/why-rising-gasoline-prices-wont-cut-into-consumer-spending/
    Bright guy. He should run for office.

    • TJ Martin says:

      I’ve been following Wolf for many a year and more often than not he’s gotten it dead wrong … including in my as well as AAA etc – et al’s opinion the article you’re linking to . Fact is I’d lay odds Wolf has been wrong more often than he’s gotten it right due to his limited perspective and unwillingness to engage in cross disciplinary conversations . In as far as his running for office … no thanks .

      • Fast Eddy says:

        Yes he gets a LOT wrong.

        Like when he suggested that we need to control population – and that if global population growth could be halted … we could still have prosperity.

        I suggested otherwise – he insulted me.

        Then I posted a number of research papers that indicated that upwards of 30% of GDP is generated by increases in population.

        He removed that — and banned me.

        Of course I had early run-ins with him over EVs and Renewable Energy …. he refused to accept those facts as well and just removed them.

        Wolf would make a great dictator. He is ‘always right’ — and he surrounds himself with yes men (oh sorry … yes people … as Justin would say)

        He could be the next Hi tler?

        • Fast Eddy says:

          In this latest episode of why Wolf Hit ler is wrong:

          1. When oil spiked in the run up to GFC…. it was offset by the housing bubble — people could continue to consume stuff because they were ‘rich’ as they borrowed against massive bumps in equity in their homes.

          2. So the low end consumer continues to spend every dollar – but with more of it going to direct energy cost + indirect costs… the end result – provided they cannot top up spending with more debt — is that they buy less stuff. The less stuff costs the same as what more stuff did – due to higher energy input costs — but when the masses buy less — corporations get sick… and they eventually die… because they must always be selling MORE stuff….

          F798 you Wolf Hi tl er. You are wrong. Again.

          And that is what makes you a MORE on…. actually a re tar ded more on. Even when a stake has been driven through your heart you will never admit you are wrong. You will dig your hole deeper. You will invoke The Censor. How very Soviet Russia of you….

          Because of this arrogance… this mental defect…. this hubris…. you are incapable of learning anything of significance.

          • SomeoneInAsia says:

            If Wolf is that bad, the contemporary mainland Chinese jingoist is worse. In his/her thoroughly CCP-indoctrinated mind everything about China must be good and nothing can be bad; vice versa for all of the rest of the world. I’ve encountered more than a few of these nutjobs at Youtube.

            Guess they’re going to be in for a very unpleasant surprise when TSHTF.

    • Fast Eddy says:

      Come on … someone needs to take him on here…. let’s see how he reacts!

      If I even land on WS the bullets start to fly…. so someone else needs to do this

      • Fast Eddy says:

        Sickofants…

        phathalo
        May 15, 2018 at 10:13 am
        To paraphrase Wolf, I hope, higher gas prices have micro-economic but not macro-economic impact on consumer spending.

        Relatively higher gas prices won’t cause a demand-side shock until it crosses some price level as Wolf notes.

        Who’s gonna be the one to stir the pot?

        https://wolfstreet.com/2018/05/15/why-rising-gasoline-prices-wont-cut-into-consumer-spending/

        • Rising interest rates at the same time won’t matter either, I suppose.

          • Fast Eddy says:

            In Wolf’s World … probably not.

            I am thinking… Wolf does post some good analysis from time to time… but his weakness is his inability to acknowledge the oil story…

            His mate who contributes talks about Mexico and blames its woes on corruption and incompetence… but as I have pointed out to him — there is nothing new there…

            What is new is that Mexico is running out of oil that is cheap to produce — therefore their production is collapsing … and the corrupt inefficient machine no longer has grease … just like Venezuela …

            If oil could go to 100+ and stay there… both of these countries would stabilize very quickly… the UK would also see better days…. as would many other countries that rely on oil revenues….

            But his mate will not acknowledge what is blindingly obvious….

            Because to do so causes the peak oil story to intrude…. and that results in hope being crushed…

            I think this latest WRONG by Wolf is tied into this …. if you acknowledge that higher oil prices do matter… that they do sap the general economy and eventually cause another crisis…

            Then you destroy hope… you challenge everything you believe to be true about BAU….

            And this can be devastating to most people — Wolf obviously cannot handle the truth.

            So he resorts to making these ludicrous assertions.

            He may not be a re tar de d more on afterall… this is just Mr Cognitive Dissonance taking over … and protecting his fragile psyche….

            • theblondbeast says:

              One simple way to describe the problem with Wolf’s analysis is that money spent on oil is literally burned, sacrificing money which may have been spent on durable capital. This is catabolic – deflationary as BAU starts to eat itself to survive.

              You can stave this off with MMT policies – extend and pretend – with anything that gives purchasing power to the masses whether it is fancy funny-money or straight up socialism. But however you paint it 100% of the money represents 100% of our economic activity. If too much of our collective effort is spent on oil other sectors collapse and bring down the whole.

            • Fast Eddy says:

              Taunt the wolf with that… I’ll ping him in the head with a 308 round if he comes at you… here wolfy… here wolfy…

              https://wolfstreet.com/2018/05/15/why-rising-gasoline-prices-wont-cut-into-consumer-spending/

            • I am not sure that the UK would see better days with $100 per barrel oil. They were an oil exporter at one time, but now they are an oil importer.

              Energy consumption per capita is falling rapidly.

              I am wondering if the energy mix is becoming horribly expensive. Coal has pretty much been phased out. Natural gas consumption is decreasing. They have added wind and solar, but I expect these are quite expensive.

            • Fast Eddy says:

              Perhaps they’d return to exporting if a hundred bucks would revive the North Sea biz…

              Alternatively they are really really f789ed no matter what…

              All moot — a sustained price of 100 bucks a barrel —- would gut BAU

            • Kurt says:

              Wolf is a nutcase. Whaddya gonna do?

  5. Baby Doomer says:

    Oil price rise likely to hit consumers with $4 billion headache and absorb benefit of tax cuts

    http://www.abc.net.au/news/2018-05-15/oil-price-rise-to-torch-tax-cuts/9762154

  6. Third World person says:

    here is the reality of organic foods farmers


    fake food
    fake money
    fake economy
    fake people

      • Fast Eddy says:

        Scott Nearing is turning in his grave this morning …. well maybe not – considering he was quite happy to use concrete, electricity (when it became available in his area), tools from factories, pumps for water, rubber hoses, shops, and of course there are those flights to warm places when he finally started to make some cash by selling books using the BAU distribution system….

      • Lower yield. Also, I think that they may often have longer shipping distance. I know that some organic food is grown in the desert, to avoid insects. But this brings other challenges, like need to water.

    • Fast Eddy says:

      The best lines I have every heard from ‘self-sufficient’ types…

      We don’t use sprays… well – except in the areas outside of the vegetable beds.

      We collect roof water and pump it onto the gardens during the hot dry periods. If everything goes to pieces we’d figure out how to get that done without electricity.

      When the economy collapses (doomie prepper told me this) yes I am aware that there are tens of thousands of people who live nearby but we’ll just deal with them when it happens — (when asked how) — we don’t have guns or anything like that.

      The solution for all would be to sing Koombaya … when it happens. Until then — just continue with the delusion.

      • MG says:

        The attack of microbes on you and the weeds on your garden is more than sure…

        • Fast Eddy says:

          I got sly smiles from permies when I said I wasn’t going to spray at the doomstead…. they understand what is involved trying this without BAU…..

          I guess if you have 12 hours on your hands in which to run a garden without spray then this will all work out…. the nett energy return would be big time negative I reckon … particularly if you have to haul water and wood from even a small distance….

          • I bought bird netting to put over my three blueberry bushes. I am sure I could buy my blueberry output for a couple of years with the cost of the netting.

            • MG says:

              I had to buy one last year, too. Also grapes need to be protected from brids and insects. Without the protective measures, other species eat our food and us very quickly…

              At least the winter in the mild areas helps to fight other species… if there is enough wood…

            • Fast Eddy says:

              Re wood… I think Norman has posted on this previously….

              First you cut the wood near where you live…. then the next year you cut wood slightly further out… and so on….

              Very soon you expend more energy and time hauling the wood back to where you live than it’s worth…. effectively you spend your entire day hauling wood.

              This was a problem in the middle ages… forcing us to turn to coal.

              Did I mention- I love coal?

            • i hope Mrs Fast doesnt object to black handprints everywhere??

            • Fast Eddy says:

              She likes it.

              Now here’s another problem … the coal is great… but the system is not functioning properly … we cannot get the room temp over 17 … the thermostat is working fine… but the thought is that a circulating pump is damaged…. (there are two)… And with winter arriving the repair people are beyond busy … repairing and servicing heating systems…. so we are having to wait … and wait…

              And then there is the issue of keeping the entire system clean — you need someone to come in once a year minimum – or your insurance will not cover you if your house burns down due to a chimney fire…

              Ya you can rattle a chain around there and loosen up the worst of it — but the goo builds up no matter what — and it will clog the chimney and catch fire…

              If you burn wood — and it’s at all green … that makes the problem worse…

              Doomie Preppies in colder kkkklimates will be aware of this …. and they will have taken courses in chimney sweeping — and purchased all the gear required… along with duplicates… because there ain’t no Wally’s World (or Amazon) post BAU…. it’s like being shot into space on a one way trip to Mars…. what you have with is all you get — forever.

            • can’t you recruit a small boy to climb up the chimney with a brush?

              worked well enough in the old days

            • Fast Eddy says:

              I knew children had to be good for something

            • Fast Eddy says:

              yes YES YEEEEESSSSSS!!!!!

              I have so many tales of permie doomie futility … here’s another:

              I bought chickens…. many chickens (18 or so)…. around 30 bucks each…. and I fed them organic pellets (had to order an entire pallet of the stuff from the north island) — it was not cheap.

              At first we had so many eggs we didn’t know what to do with them…. M Fast was conjuring meals made with eggs… scrambled for breakfast – omelets with veg…. boiled eggs… etc etc etc…. we became super-saturated with eggs…. no mas no mas!!!!

              But then…. came winter…… apparently chickens don’t lay much in winter…. so we then had very few eggs… but them sun of a bi tch chickens were still ripping through the expensive organic pellets like no tomorrow….

              And then as the two year mark approached… some of the chickens stopped laying completely… apparently that’s the shelf life…. they are – like the UK economy ‘menopausal’ …. but the bas tards still kept gobbling that the gold organic pellets… draining my coffers… but like Wolf said — that doesn’t matter — even if all my coffers (and everyone else’s) went to buying organic chicken feed that would have zero impact on the overall economy ….

              Then one day I awoke and thought about this situation … my eyes glazed over…. I peaked out the door

              Went walked down to the coop…. with a shovel … and a I approached the chickens from behind … and one by one … I normaned them:

              M Fast was much chagrined when I informed her that we no longer had to buy more golden chicken pellets… because the chickens had been dispatched to chicken utopia….

              The morals of the story:

              1. I estimated that each precious egg pumped out of these chickens was costing about 2 bucks… at least…

              Meanwhile… I could buy organic free range eggs for less than a buck in the Wally’s World…

              2. If you don’t feed chickens a rounded diet — and just let them peck in the dirt for bugs and sh it… they lay just about f789 all…. and since Wally’s World will not be selling pellets – organic or otherwise…. when BAU ends…. the chickens won’t be laying very much….

              3. When BAU ends …. the hordes will kill the non-laying chickens and eat them. 100% Guaranteed.

              Doomie Prepping is a dead end street.

            • like that guy and his wife living ”independently” above the arctic circle—using dog sleds for transport etc

              then has to FLY IN the dog food to feed them

              and hauls up his wind turbine tower with a tractor

              i must be missing something

            • Fast Eddy says:

              Me now:

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