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.

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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

    • Where did you get this from?

    • DJ says:

      Why does a stock bubble lead to raised interest rates?

      If stocks dividends shrink shouldnt demanded risk free rate sink?

      • Remember, issuance of shares of stock and issuance of debt are essentially similar. They both fund the company; how they pay back the result is somewhat different.

        Very low interest rates tend to cause both stock bubbles and debt bubbles.

        The reason why stock bubbles form is partly because stocks look like the better investment, if bonds pay practically nothing. Also, some people buy stocks on margin (with debt). With low interest rates, it is cheap to do this. Furthermore, even investments in very low yielding capital goods appear reasonable, because the interest payback is so low. So companies tend to expand into money losing, or close to money losing ventures (Amazon, Uber, Tesla, etc).

        Debt bubbles form for much the same reason. Most any kind of investment looks good, if interest rates for repayment are low. Perhaps even auto drivers with low earnings can afford a new car, financed over a very long period.

        Now suppose a surprise comes along–higher interest rates for new debt, or higher oil prices. A whole lot of the debt will suddenly be backed by enterprises that are no longer making money. Many close to money losing ventures suddenly have problems repaying their debt, or getting new financing. Lower income workers may find that the cost of commuting is too high, and have trouble with mortgage payments, especially those with low incomes in distant suburbs. Or they may default on their auto loans.

        As the debt bubble collapses, banks and bond holders suddenly say, “Oops, we really needed higher interest rates. In fact, we probably shouldn’t be lending to some of these debt holders at all.” So interest rates rise, and credit availability is cut back.

        With the higher interest rates, bonds suddenly look like a somewhat better investment compared to stocks. This reduces some of the demand.

        Another area affected by higher interest rates is corporate buy-backs of shares of stock. Part of what has been holding up stock prices in recent years is corporate buy-back of stock, using funds raised by selling more debt. As interest rates rise, this looks less and less like a good strategy. If interest rates are high, it makes more sense to get funding from stock sales than from bond sales. So these fall off as well.

        Furthermore, some people bought shares of stock “on margin” with debt. If prices start to fall a little, there may be a “margin call.” The person will either need to sell the shares of stock, or will need put funds in so as to not exceed the maximum percentage that can be purchased “on margin.” This can turns small drops in the price of shares of stock into large drops in the price of shares of stock.

        You raise the possibility of low interest rates. Governments see what is happening and say, “We could fix (part of) this problem, if we could turn high interest rates into low interest rates.” So they institute programs of Quantitative Easing. They issue more debt, but buy it back (with printed money) and hold it on their central bank’s balance sheets. They may buy back other debt as well, to try to reduce interest rates. But without government intervention, this doesn’t happen. And their are limits as to how far this operation can really go. They cannot buy back more securities than are available for sale, for example.

        • theblondbeast says:

          Amazon spends 5% of its revenue on shipping. ($7B). Most shipping companies have about 10% of their costs as fuel. Significant increases in fuel prices make this already stretched model fall apart.

        • Harry Gibbs says:

          And many portfolio managers lack experience of rising rates. What could possibly go wrong?

          “Interest rates are hitting multiyear highs at a time when most portfolio managers have never dealt with this phenomenon before. The U.S. 10-year Treasury note yield rose to its highest level since 2011 on Tuesday, while the short-term two-year yield traded near levels not seen in about a decade, raising concern about how portfolio managers will navigate this changing investment landscape.

          “But most of them have never operated in a rising rates environment. The median tenure of an active equity manager is eight years, according to Fundstrat, citing figures gathered from Morningstar.”

          https://www.cnbc.com/2018/05/15/us-rates-surge-and-most-portfolio-managers-dont-know-what-to-do.html

    • Third World person says:

      even copper production is about to be peak

      Copper supply crunch earlier than predicted — experts
      Copper demand will surpass supply earlier than expected, with the first clear signs coming as early as next year, experts attending the 17th World’s Copper Conference being held this week in Santiago, Chile, said.

      According to Arnaud Soirat, chef executive for copper and diamonds at Rio Tinto, increased consumption from new technologies, including electric vehicles, will drive demand for the metal and its by-products, he said.

      “We anticipate global market supply and demand will keep close to balance in 2019 and 2020,” he said, noting that after that the deficit will become increasingly evident.

      Over 200 copper mines currently in operations will reach the end of their productive life before 2035.
      The outlook is widely shared by other experts, including CRU analyst Hamish Sampson. According to him, unless new investments arise, existing mine production will drop from 20 million tonnes to below 12 million tonnes by 2034, leading to a supply shortfall of more than 15 million tonnes.

      The situation looks even worse when considering that over 200 copper mines currently in operations will reach the end of their productive life before 2035, Sampson said on Monday.

      Only if every single copper project currently in development or being studied for feasibility is brought online before then, including most discoveries that have not yet reached the evaluation stage, the market could meet projected demand, the consultant said.

      Colin Hamilton, managing director of commodities research at BMO Capital Markets, fully agrees with Sampson. He told MINING.com on Tuesday that even when there was an apparent rise in copper inventories on exchanges around the world, which somehow has dented confidence in the metal, the outlook is very positive.
      http://www.mining.com/copper-supply-crunch-earlier-predicted-experts/

      • Fast Eddy says:

        Not a problem — just double the price of copper and there will be plenty of new mines opening.

        • Fast Eddy says:

          I learned that in grade 9 economics class.

          • JesseJames says:

            I took one economics class in college. The prof talked about trade as “economic advantage” for both parties. My BS meter (which is highly sensitive and accurate I will say) was going off. There was no substantiation of that claim.
            So this was an early argument for globalism.
            Trade is useful for items that cannot be produced or obtained locally.
            Any other reason is globalism for profit motive and nothing else. Short term economic advantage does not correlate to long term economic advantage.

            • DJ says:

              I think the trade wouldn’t take place if it didn’t seem advantageous for both parties.

    • Fast Eddy says:

      Nothing to look at… move along….

  1. Fast Eddy says:

    When you borrow too much against the future…. and the future arrives… this is what starts to happen:

    https://www.zerohedge.com/news/2018-05-15/rate-hangover-arrives-us-consumer-loan-demand-tumbles

    I suppose we will find out how magical the CBs really are — can they push on a string without it folding?

  2. Third World person says:

    when i watch this show it make me laugh see all the stupid prediction of future
    in 60s

    • There had been a long period from say 1880 to 1960 or even 1970 when there were lots of amazing inventions becoming available. Computers were becoming available; much more fancy word processing equipment was becoming available. The first color television sets were made in 1954, and became more widely used in the 1960s and 1970s. Also photocopy machines and snow blowers. Microwave ovens came into use in the 1970s.

      Since then, it seems like most inventions are “ways to save energy.” We have LED monitors instead of cathode ray tubes. We have LED light bulbs. We have cars with a few more bells and whistles that are supposed to be more fuel efficient.

      Maybe if we had kept adding inventions as rapidly as we did before the late 1970s, we would indeed have been zipping around in our own personal jets. But oil supply didn’t keep growing fast enough.

      • jupiviv says:

        “Maybe if we had kept adding inventions as rapidly as we did before the late 1970s, we would indeed have been zipping around in our own personal jets. But oil supply didn’t keep growing fast enough.”

        And there are physical constraints which tech cannot overcome.

      • jupiviv says:

        Also, thanks for the article.

        • Thank! I ordered the paperback version. It is better to have a reference, rather than “Gail thinks,” or even “Wikipedia says.”

        • fascinating book link—thanks…but much of it is too detailed for the average reader-interest to be sustained for very long–excellent reference work tho

          but even that book intro seems to make the classic error of ”progressive economics”

          whereas the real improvement came from our ability to shift stuff from a to b.
          the easier that became, the more got shifted, increased the population, demanding more ”shifting” and so on

          first it was cannonballs (military always comes first)—but the first cannonballs were round stones, not iron—then it was goods, then people
          all in vast and ever-increasing quantities

          the people with the biggest guns were able to grab the lion’s share of resources—this was the critical factor in the usa after 1870—oil was there for the taking, the oil made possible even bigger wars—more cannonballs if you like, providing the momentum for commercial progress—but that still meant shifting stuff from a to b to make that growth continue

          unfortunately the certainty will continue, that we can go on improving ”technology”, in denial of the fact that shifting stuff is going to cost more than we can afford

      • JesseJames says:

        Farnsworth, the man who invented and pioneered the television, said he was looking at his plowed fields one day, and the plow lines gave him the idea to implement the television raster lines. So he went from looking at plowed fields, to developing tv. It took cheap energy to do so. He was an innovator in a time before government chewed up so many of our financial resources.

      • JesseJames says:

        Cheap fossil fuels are what enable us to pretend we live wonderful, high tech, sustainable lives. I.e. we bury the waste of our industrial civilization. We ship it somewhere else. We dispose of the problem to someone else. The Jetsons show the ideal imaginary life….all the high tech gadgets with none of the downside….the pollution, the landfills, the polluted oceans, water and air, the destroyed eco environments. Unfortunately, the biblical truth “you reap what you sow” will get mankind….I mean peoplekind. We cannot escape the shear magnitude of the unsustainability that we add to each and every day.
        I laugh at the airline travelers that board with their smartphones instead of a paper boarding pass. They think they are being eco-friendly. This single act is a “Jetsons” type moment.

        • Fast Eddy says:

          Then there is the 6000+ pounds of lithium aluminum and plastic and other metals otherwise known as a Tesla — that is driven as a badge of honour by wealthy Green Groopies… who believe they are saving he world…

          Who — if you mention any of the above — will ignore the facts… and continue to believe what they are told to believe….

          How f789ing duuumb is that.

  3. Fast Eddy says:

    Wolf Richter
    May 15, 2018 at 9:57 am
    Read the article all the way down, and don’t just react to the headline.

    Gasoline IS PART OF consumer spending. Consumers spend more on gasoline and perhaps a little less on other things (depending on where they are on the income spectrum). So overall spending stays the same.

    High gas prices just change the MIX, not overall spending, and the mix changes constantly anyway. That’s what the article is all about: that higher gasoline prices won’t cut into overall retail spending and consumer spending (by definition).

    The article also addresses the issues households at the lower income levels face, namely the triage they have go through, but that they’ll continue to spend every dime they have, and that therefore overall consumer spending is not impacted.

    What a Fokkiing REEEE tard!

    So using this ‘logic’ if petrol prices were $100 a litre… and every cent went towards buying petrol because of this …. consumer spending would not be impacted. Because the consumer would still be spending every cent he has.

    D un ce of the week award goes to WOLF! Come on up here Wolf…. and btw what kinda name is Wolf? Who came up with that? Anyway – well done Wolf … how about an article about EVs and Renewables… come on Wolfy … to sser. W,an ker.

    • Fast Eddy says:

      More MOre onism on exhibit:

      Wolf Richter
      May 15, 2018 at 2:23 pm
      It’ll change the mix of consumer spending but won’t impact the level of overall consumer spending. All the items you list are part of “consumer spending,” including gasoline, public transportation, etc. They’ll spend more here, and then spend less there. Some industries will be complaining, and others will be laughing all the way to the bank.

      Higher-income households will actually just spend a little more rather than cut back on things since the have the financial flexibility to do so.

      Lower income households spend every dime they have access to, no matter what the cost of gasoline, but they’ll shift spending around, and they’ll drive less, etc. but the amount of their total spending is determined by how much money they have access to, not by the cost of gasoline.

      • We will get recession and layoffs in discretionary sectors. This will bring the price of oil down further.

        • Fast Eddy says:

          I dare someone to try to take on Wolf with these points….

          First he will get p issed off… and post condescending comments…

          If you persist… he will ban you.

          I bet if he could get away with it — he’d have Fast Eddy in the gulag busting stones for 20 years … for proving him wrong.

          Dictatorstreet.com

  4. Volvo740... says:

    I’ve gathered some food price inflation data for you all. Directly from the BigMac database. Price in USD.

    Year BigMacPrice IncreaseOnPriorYear
    2018 5.28 3.529411765
    2017 5.1 2
    2016 5 4.384133612
    2015 4.79 3.67965368
    2014 4.62 1.315789474
    2013 4.56 5.311778291
    2012 4.33 6.388206388
    2011 4.07 13.68715084
    2010 3.58 0.280112045
    2009 3.57 0
    2008 3.57 10.86956522
    2007 3.22 2.222222222
    2006 3.15 2.941176471
    2005 3.06 5.517241379
    2004 2.9 7.011070111
    2003 2.71 8.835341365
    2002 2.49 -1.968503937
    2001 2.54 1.195219124
    2000 2.51 3.29218107
    1999 2.43 -5.078125
    1998 2.56 5.785123967
    1997 2.42 2.542372881
    1996 2.36 1.724137931
    1995 2.32 0.869565217
    1994 2.3 0.877192982
    1993 2.28 4.109589041
    1992 2.19 -2.666666667
    1991 2.25 2.272727273
    1990 2.2 8.910891089
    1989 2.02 -15.48117155
    1988 2.39 49.375
    1987 1.6 0
    1986 1.6

    There are fluctuations, but the growth rate that best match this data is 1.039, so pretty close to 4%.

  5. Ed says:

    https://www.solectrac.com/eutility
    Electric tractor how cool is that.

    • Lastcall says:

      I guess the efficiency of battery power will compensate for the relatively low kWh but I’ll keep my 50 year old Fergie! It has a 40 litre diesel tank and still does incredible things. 40 x horse power without the hooves!

      Can’t see a 35 kWh tractor doing much work at all…or am I wrong?

      Energy content of some fuels
      1 kilogram of dry wood 5,3 kwh 19,0 mJ
      1 kilogram of coal 8,1 kwh 29,3 mJ
      1 cubic metre of natural gas 8,8 kwh 31,7 mJ
      1 litre of petrol 9,1 kwh 32,6 mJ
      1 litre of diesel-oil 10,0 kwh 35,9 mJ

  6. Fast Eddy says:

    Let me use an example to explain why AI cars are NEVER going to happen.

    Check out this https://www.spark.co.nz/contactus/

    When you click chat you get an AI customer service thing … you can type in your question and it will try to answer …

    Good f789ing luck with that unless you have a question that a re tar ded MOREonic 3 year old with cerebral palsy, advanced AIDS, who has been lobotomized and water boarded by Don Rumsfeld and Dick Cheney to the edge of death 500x….(just for kicks)…

    For anything else — you will need to type in Human Please…

    Even though humans are very stuuuupid beasts… even the stuuuupidest human is a billion times more capable than AI….

    Human please…. Human please…. please… please…. I’m burning up in here!!!

    • jupiviv says:

      Wrong. AI can be much more capable than humans, for very specific tasks requiring a very small set of skills/functions and very high predictability of error and environmental variation. Unfortunately, this makes it unsuitable for pretty much any job where it isn’t extensively employed already. Sad!

      • Fast Eddy says:

        Wrong. Who do you think programs the tool to carry out the repetitive task?

        AI is NOT intelligent. It is stupid. It has no brain. It cannot solve a simple problem.

        Try that Spark AI – see for yourself how f789ing re tard ed that AI is A – re tard ed. A More On.

        There… I fixed it for you

        • jupiviv says:

          Sure AI isn’t actually “intelligent” and requires human input, but it can still outperform humans in certain tasks. The problem as I pointed out many times before is that it cannot adapt to different tasks or reliably handle too much variability within the same task.

          This is why the idea of a small population living off the labour of AI slaves is pure fantasy. There would just be too many robots, of too many types, all around the globe. Even with adequate maintenance and supervision (unlikely) things are certain to go wrong somehow.

          • you would have a small population whose function would be to energise the robots

            which would be the ultimate in pointlessness

          • Fast Eddy says:

            Certain simple repetitive tasks … for instance… welding a fender onto a car on an assembly line… it can do that faster and more accurately than a human… because that requires no brain power….

            On the other hand AI cannot a human customer service person… and it most definitely cannot pilot a car better than a human… because it is impossible to program in a reaction for the infinite potentialities for disaster … it requires a certain level of intelligence to drive a car safely … AI has zero intelligence…

            It is no smarter than a rock.

            • what musk cannot grasp—is that for AI vehicles to be fully viable 2 things have to happen

              1 all vehicles have to be AI

              2 no human beings can be allowed within the operating area of said vehicles.

              just as with the welding of car parts—no human bits are allowed within the function area of the welding operation

              just seems so stupidly obvious to me.

            • What happens when there is no GPS connection? No internet connection? It wasn’t long ago we got lost while driving in the North Georgia mountains. We discovered our phones didn’t work. There was no GPS available. We were supposed to be with a group going to a lunch at a restaurant, after sight-seeing at large garden spot. We got lost from the group. Some people had printed out direction ahead of time, knowing that connections are pretty bad in the North Georgia mountains, but we hadn’t. We stopped and asked directions, and found ourselves driving down one lane unpaved roads. If we couldn’t figure it out, how would a self-driving car figure it out?

            • Fast Eddy says:

              That is a dangerous situation — there are hillbillies in the mountains…

            • you didnt point out which one was you and which one was the hillbilly

            • Fast Eddy says:

              I’m the one with all my teeth (although a couple have been busted by hockey sticks and patched up…)

      • Rodster says:

        Google recently demoed their AI caller, and it sounds humanlike. All major tech firms including the Miltary Industrial Complex, spend hundreds of billions of dollars each year in AI research. Some of the advancements in robotic AI already looks troubling.

    • JeremyT says:

      Sorry, we couldn’t find any results for “What does Fast Eddy know?”.

      • thats because your hard drive doesn’t have sufficient memory fpr it all

        • Fast Eddy says:

          +++++

          I am surprised that search didn’t cause the internet to explode — triggering the end of BAU.

          The El ders BAU End of BAU Protection Team must have sensed what was happening and immediately stepped in to invalidate the search thereby again prolonging this ‘menopausal’ situation.

      • Fast Eddy says:

        Try searching: Fast Eddy World Championships

    • NikoB says:

      Gave it a try FE

      Spark Hi! I’m Spark’s chat bot, I’m in training! My human colleagues are super busy right now, but I’m free to talk. Ask me a question using short and simple sentences. If you need to talk to one of my colleagues, type: “human please” there may be a bit of a wait.

      How to ask me questions

      08:54

      what are you 08:55

      Spark I’m a machine at helping Spark customers. As a chatbot, I’m able to help with most things here. 08:55

      how do you feel today 08:55

      Spark I’m having a great day! I hope you’re well 😊 08:55

      was does great mean to you 08:55

      Spark I don’t understand 🙁 I’m sorry. Is there another way you can ask me that question? You can also type: “human please” if you’d like to talk to one of my human colleagues. 08:55

      what don’t you understand? 08:56

      Spark I’m sorry I haven’t been able to help. You can try asking your question again, using short and simple sentences. Or, type: “human please” and I’ll get one of my human colleagues.

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