The World’s Fragile Economic Condition – Part 2

The world economy can appear to be operating quite well but can be hiding a major problem that causes it to be fragile. My presentation The World’s Fragile Economic Condition (PDF) explains why we should expect financial problems if energy consumption stops growing sufficiently rapidly. In fact, a global sell off in the equity markets, such as we have started to see recently, is one of the kinds of energy-related impacts we would expect.

This is Part 2 of a two-part write up of the presentation. In Part 1 (The World’s Fragile Economic Condition – Part 1), I explained that a large portion of the story that we usually hear about how the world economy operates and the role energy plays is not really correct. I explained that the world economy is a self-organized system that depends upon energy growth to support its own growth. In fact, there seems to be a dose-response. The faster energy consumption grows, the faster the world economy seems to grow. The period with fastest growth occurred between 1940 and 1980. During this period, interest rates were rising and workers saw their wages increase as fast as, or faster than, inflation. After 1980, the rate of growth in energy consumption fell, and the world needed to tackle its growth problems with a different approach, namely growing debt.

In this post, I explain how debt (and its partner, the sale of shares of stock) help pull the economy forward. With these types of financing, investment in new production becomes almost effortless as long as the return on investment stays high enough to repay debt with interest and to repay shareholders adequately. At some point, however, diminishing returns sets in because the most productive investments are made first.

The way diminishing returns plays out in energy extraction is by raising the cost of producing energy products. In order for the sales prices of energy products to rise to match the rising cost of production, rising demand is needed to give an upward “tug” on sales prices. This rising demand is normally produced by adding increasing amounts of debt at ever-lower interest rates. At some point, the debt bubble created in this manner becomes overstretched. We seem to be reaching that point now, especially in vulnerable parts of the world economy.

Slide 34

Let’s first look at a slide from Part 1, explaining the way in which the economy works like a giant factory.

Slide 20

As long as energy products are very inexpensive, it is possible for the economy to expand very rapidly. When this happens, the Goods and Services produced in Box 4 are able to grow so rapidly that all of the Resource Providers in Box 1 can be well compensated, simply by using a quasi-barter arrangement, facilitated by the use of money. With this approach, Resource Providers can get adequately paid using the Goods and Services produced in close to the same time period. Something of this nature occurred prior to 1970, when inflation-adjusted oil prices were less than $20 per barrel (Part 1, Slide 26).

Slide 35

If the growth of the economy slows, so that not enough Goods and Services are being created by the economy to use this approach, it is possible to work around the problem by adding debt. Adding debt makes it possible to substitute promised future Goods and Services for already produced Goods and Services.

Slide 36

Added debt makes it seem like more goods and services are available to pay resource providers.

Selling shares of stock acts very much like debt, because the funds provided by these shares also provide access to goods and services that others have already produced. In the case of the sale of shares of stock, the promises are for future dividends, capital appreciation, and partial ownership of the company.

Slide 37

Growing debt looks like it can solve all problems! No wonder that Keynesian economists found it so useful. But the return must remain high enough to repay debt with interest.

Slide 38

Borrowing money generally comes with the requirement that the amount borrowed be repaid with interest. If the energy purchased using debt allows the economy to grow fast enough, there is no difficulty in repaying debt with interest. If energy is very inexpensive (equivalent to oil cost less than $20 per barrel in inflation-adjusted price), this payback system generally works because a large amount of energy can be purchased for a small quantity of debt.

If the price of the energy rises, much more debt is required for the same amount of energy produced. For example, if oil is $80 per barrel, the affordability is much lower. It takes four times as much debt to pay for a barrel of oil. Repayment of debt with interest becomes more difficult.

Slide 39

In Part 1, we observed that US long-term interest rates have been falling almost continuously since 1981. This situation of falling interest rates led to falling mortgage payments for a given amount borrowed. Because of the lower monthly payments, homes became more affordable; in other words, there tended to be more potential buyers for homes at a given price level. Indirectly, the increased affordability of home ownership tended to raise the resale value of homes. It also encouraged the building of additional homes.

Building homes indirectly requires the use of many different types of commodities. Metals are used in pipes and in wiring. Wood is used for framing. Concrete is often used for the basement. Oil is needed to haul these goods to the site where the home is to be built. Thus, indirectly, falling interest rates tend to raise commodity prices.

Slide 40

Many assets are purchased with debt. If interest rates are very low, purchasing these assets becomes more affordable. The sale of shares of stock provides another way of raising capital for a company. In the case of oil-producing companies, the purchasers of shares of stock often think, “If extraction costs are rising, surely oil prices and other energy prices will rise as well.” This belief allows the price of shares of stock to be bid up to a high level.

Slide 41

When asset prices rise, economists sometimes refer to the wealth effect. Homeowners feel richer if their homes are worth more, and they can borrow more against them. Owners of shares of stock feel richer if their shares of stock have higher values. Owners of pension plans are happy when stock prices are high, because it looks as if these shares can be sold, allowing the plans to meet their pension obligations.

If the debt bubble stops growing, then the commodity price bubble cannot continue to grow. In fact, it may abruptly pop. This is what happened in the second half of 2008, when oil prices dropped precipitously, from $147 per barrel to the low $30s.

Slide 42

Government pension plans such as Social Security are not treated as debt because they are not guaranteed, but they act in much the same way as debt.

Slide 43

The gray bars on Slide 43 indicate recessions. These recessions often seem to be intentionally caused. If a person looks closely, it is possible to see that in most cases, increases in US short-term interest rates preceded recessions. In fact, if a person looks at the minutes of the Federal Reserve Open Market Committee, it is sometimes clear that the Open Market Committee raised interest rates to intentionally pop asset bubbles in order to “reduce volatile food and energy prices.”

Slide 44

The huge interest rate spike to 18% in 1981 on Slide 43 corresponds with the big drop in oil prices on Slide 44. Interest rates were so high that buyers could no longer afford new homes or factories. Prices seem to have been brought down by falling demand.

Slide 45

If we look at recent oil prices, we can also see that they also depend very much on interest rates. In my paper, Oil Supply Limits and the Continuing Financial Crisis, I show that the US debt bubble popped precisely when oil prices hit a peak in July 2008. That is when US consumer credit and mortgage debt started falling.

On Slide 45, QE stands for Quantitative Easing. This was a program that allowed lower long-term interest rates in addition to lower short-term interest rates. Thus, it gave the Federal Reserve (and other central banks) the power to reduce interest rates to an even greater extent than was possible by reducing short-term interest rates alone.

Slide 46

The Federal Reserve seems to have been instrumental in causing the Great Recession, as well. Slide 46 shows a larger scale of the same information about oil prices and short-term interest rates shown on Slide 43. There can be several years between the time interest rates are raised and the resulting recession occurs, so most people miss the role that intentionally raising short-term interest rates plays.

Also, high oil prices also tend to have an adverse impact on the economy because energy prices rise, but wages do not rise at the same time (Part 1, Slide 28). Consumers are forced to cut back on discretionary goods when the cost of necessities (such as the cost of commuting and the cost of food) rise.

In fact, it seems to be the combination of rising energy prices and increased interest rates that leads to recessions.

Slide 47

On this chart, I show some of the comments heard about oil prices. In mid-2008, it was clear that high oil prices were becoming a problem, especially for those with subprime mortgages who were living in homes that were distant from their work. By early 2014, we started hearing that oil prices had been too low for oil producers in 2013. Because of the unprofitability of oil production, some oil producers were cutting back on investment in new production. See my post, Beginning of the End? Oil Companies Cut Back on Spending.

Now, it is fairly clear that no oil price will work for both producers and consumers. Today’s Brent oil price of about $80 per barrel is both too low for producers and too high for some consumers. Consumers who are particularly affected are those whose currencies are falling relative to the dollar, such as consumers in Turkey and Argentina. Even countries with more modest decreases, such as China and India, are cutting back on automobile purchases. This change will affect future oil demand.

If, by some chance, oil prices should spike to a high level such as $100 per barrel, the affordability problem pretty much guarantees that oil prices will fall back fairly quickly. This issue, by itself, makes it impossible to believe that oil prices will increase endlessly.

I should mention, too, that we are also at a point where no interest rate works for everyone. Those buying new homes and new cars need low interest rates, in order for these goods to be affordable. Pension plans, on the other hand, need high interest rates, in order to meet their pension promises. There is no one interest rate that works for every purpose.

Thus, we have a combination problem: no interest rate works for everyone, and no set of energy prices works for everyone.

Slide 48

The Federal Reserve is now in the process of raising short-term interest rates (see Slide 43). It is also selling the QE securities that it previously acquired to reduce long-term interest rates. If buying these QE securities lowered long-term interest rates, selling them should raise long-term interest rates. Raising both short- and long-term interest rates sounds like a formula for creating a huge number of debt defaults and lowering prices of shares of stock. It is likely that these actions will also start a major recession.

Slide 49

Slide 50

On Slide 50, “earlier” refers to Slide 16 in Part 1 of this presentation. From Part 1, we remember that the first small peak refers to the California gold rush; the second larger peak about 1910 refers to “Electrification and Early Farm Mechanization.” The third peak about 1970 refers to the “Postwar Boom.” The last small peak refers to the expansion made possible by China’s growth, and the growth of other Asian countries.

Slide 50 shows that the troughs refer to periods that were bubble collapses, or the collapse of the central government of the Soviet Union. Slide 51 (next) gives details with respect to these low periods. These were bad times for economies: depression, debt collapses, and periods with significant wage disparity. They were not periods with high energy prices.

Slide 51

Clearly, none of these low periods was a good period for the economy. While we can see that there was low energy consumption during the periods, the primary reason for this low energy consumption was the collapse of a debt bubble or of a government.

Slide 52

Peak coal occurred in the United Kingdom in 1913, and World War I began shortly thereafter, in 1914. When peak coal occurred, wages for workers were very low, because diminishing returns had made the operation of coal mines increasingly expensive, but those purchasing coal could not afford higher coal prices. Thus, mining companies could not afford to pay workers adequate wages. World War I gave an alternative employment opportunity for coal miners and others with low wages.

Entering World War I was a very successful strategy for the UK. The fact that the UK was on the winning side allowed the UK to retain its role as the holder of the reserve currency. In this position, it was fairly easy for the UK to borrow the funds needed to obtain coal and other energy imports.

Germany seems to have encountered peak coal about the time World War II began. Was this an attempt to cover up Peak Coal? We don’t know for certain, but the timing certainly looks suspicious.

In both of these cases, low energy supply seems to have led to fighting, rather than high prices.

Slide 53

The collapse of the central government of the Soviet Union seems to have been an indirect impact of the long term low oil prices in the 1981-1991 period. The high oil prices of the 1970s had encouraged the Soviet Union to ramp up oil production. Once the US raised interest rates and oil prices fell, there were no longer funds for investing in new oil production. The Soviet Union was dependent on oil exports. It was able to continue for quite a few years with low prices, but eventually its central government collapsed. Over the long term, consumption has continued to be much lower, reflecting the permanent loss of industry.

Slide 55

Slide 55 is a graph of the “peaks” on Slide 50. If we listen to mainstream economists (including Paul Romer and William Nordhaus, who recently received the Nobel Prize in economics), improved technology can allow the world economy to become increasingly efficient, and thus overcome the problem of diminishing returns. Slide 55 shows that over a period of nearly 200 years, this has never happened in the past. The troughs represent collapses of one kind or another. These low periods did not represent sustainable situations.

The problem is that diminishing returns leads to the need for very different techniques to work around new problems. For example, if there are diminishing returns with respect to extracting fresh water from wells, the first alternative is to dig deeper wells. Efficiency gains can somewhat help offset the cost of deeper wells. But once the problem advances to the point where desalination is needed, plus remineralizing the water with the correct minerals after desalination, the cost of fresh water becomes much higher. It becomes impossible for improved technology to work around the very large increase in costs that diminishing returns seems to cause.

We haven’t been able to work around diminishing returns with increased efficiency before; we are likely kidding ourselves if we think we can do so now.

Slide 56

Slide 57

Slide 58

The point that should be emphasized is that the reason why the United States economy now looks fairly good is because we are at the top of a debt bubble. This bubble is partly the result of world’s long running low interest rates, and partly because of the United States’ recent tax cuts. Thus, the situation today is a lot like 1929 before the debt bubble collapsed, or a lot like 2007 before the economy derailed. Things look good, but they won’t necessarily stay favorable for very long.

Slide 59 Conclusions Continued v2

Slide 59

Separate Additional Conclusions for Various Audiences 

At this writing, I have actually given variations on this talk three different times, to different audiences. The first audience (which is the one I mentioned at the beginning of Part 1) was a meeting of about 100 property-casualty actuaries. These actuaries help determine rates and financial statement amounts for lines of insurance such as automobile, homeowners, and medical malpractice. The specialized conclusions I added for that audience were the following:

Slide 61

Slide 62

The second version of my talk was given at the 2018 Bermuda International Life and Annuity Conference, to a group of 300+ insurance executives of various kinds. This talk was called Energy Economics: Is a Discontinuity Ahead? This audience was especially interested in my talk because interest rates are central to the operation of pension plans. If interest rates do not rise, this is a major concern for this group.

The conclusion slides to that presentation were the following:

Conclusions -Slide 1 of 2 – Life/Pension version

Conclusions for Life and Annuity Providers – Slide 2 of 2

The third version of the presentation I gave was to a group of followers of Peak Oil theory. This presentation was somewhat shorter and slightly rearranged. The title of this presentation was How the Energy System Really Works and What Seems to Be Going Wrong.

Its short conclusions’ sheet mentions the following dangers:

Conclusions of Shorter Version

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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2,108 Responses to The World’s Fragile Economic Condition – Part 2

  1. jupiviv says:

    Shale oil is NOT a ponzi scheme:

    “Based on such a decline curve, I further reckon that – everything else held the same – production will keep growing as long as the annual investment is maintained at over 44% of the level as in the first year. This refutes the notion that shale oil is a black hole for capital.

    Furthermore, advancement in drilling and completion technologies in combination with efficiency gain due to the economies of scale have made it possible for shale developers to use less investment to produce more oil. This further underlines the fallacy of the belief that shale oil is a Ponzi scheme. Therefore, it is suggested that you have a few shale oil names on your watch list.”

    Sounds legit!

    • Individual companies need to “prove” to their auditors that over the company as a whole can continue as an ongoing operation. In order to do this, models must show that current wells can be expected to be profitable. The devil is in the details of these models.

      One of the big issues is, “How many years should the model go out?” If we assume that each well has an economic life of 40 years, we get a whole lot more future oil extraction than assuming 30 years, and 30 years gives a whole lot more than 20 years. Of course, if we have had experience for barely 10 years, so we really don’t know. We don’t really know the shape of the decline curve yet, with confidence, either.

      There are many other issues with the model. Do wells need to be “refracked” to keep up their production? If so, that adds a whole lot of new expenses.

      Are there fixed expenses with the operation (maintaining roads to the whole set-up, or checking on wells have temporarily stopped producing, for example) that don’t go away, if annual production is tiny?

      What oil prices should be assumed over the long future period?

      In making projections about future production, a major question regarding new wells is whether they will be as productive as previous wells. Using the “best first” principle, at some point, diminishing returns sets in. When this happens, if an equal number of new wells is drilled in year N+1, production may still drop, because of declining resource quality.

      And of course, another issue is future efficiency gains. In a model, these can be made to cure most problems.

      I haven’t personally worked with oil models, but I know that insurance models can be created to produce almost any result the employer wants.

      • Hubbs says:

        My understanding is that the depletion rates of these shale oil sites is up to 80% after 3 years- ephemeral compared to the traditional Texas Crude mid grade oils. The shale drillers have to drill like mad, with new daughter wells every few years around the parent well. The EROI and ultimately the EROEI are very suspect.

        • its pretty universally accepted that you can’t run a modern society on energy returns much below 14 to 1

          fracked wells/tarsands etc deliver about 6 to 1

          in fundamental economic terms, the fracked wells can only continue with the energy support of conventional wells supplying about 19 to 1 at best.

        • I expect that whether or not the depleting of the wells is 80% after 3 years depends on whether a person assumes that somehow, the wells will actually produce for 40 years, and that after the early quick depletion, future depletion will be very slow. In the world of modeling, anything seems possible on an Excel spreadsheet.

      • Sven Røgeberg says:

        Gail, what in your opinion the best studies or articles regarding the shale oil production in the US?
        Ugo Bardi writes in his last post: «But, as for older empires, the American one will last only as long as will be able to produce fossil fuels. And the end can’t be too far away: conventional oil production has been declining for decades in the US territory, while the production from shales can only postpone the unavoidable.«

        • As far as I am concerned, shale production depends on how high the debt bubble can be blown. If we can somehow get oil prices up to $150 per barrel, and stay there, we can get quite a bit. (I doubt this can happen.) If we can’t, then shale oil will go down with all the rest.

          • Dan says:

            Gail I’m assuming your $150 number is based on today’s dollars but as the “debt bubble is blown” as you put it, then it’s a game of a snake eating its tail. So, I believe you will be proven correct that the price can only be as high as the consumers can pay. Don’t get me wrong the debt bubble is going to get blown, it’s the only rabbit left in the bag and thus there will be an energy collapse coupled with an economic collapse simultaneously. When we see $150 oil we’ll be there – double the price and double the debt with nearly everyone already sunk with the few remaining survivors chin deep.
            The game was over a long time ago.
            I’ll repeat what I said the other day:

  2. It seems everyone has forgotten Adnan Khashoggi, Trump’s old pal , during this Khashoggi circus. Few people talk about that the guy who disappeared was a nephew of Adnan, who liked to flaunt his wealth

    Adnan’s other famous nephew (thru his sister) was Dodi Fayed, who died with Diana Spencer.

    I have followed the rich people of the old. Fun days. Apparently the guy who croacked knew too much and was going to sell the secrets to some wrong people.

  3. CTG says:

    This is bad…

    Are those reasons the real reason for the slump or just convenient scapegoats like blaming lower sales in winter due to snow?

    • Or are higher interest rates playing a role?

      • Fast Eddy says:

        Apparently some purchases were brought forward due to new emission controls… causing this massive drop ….

        If that is just a bullsh it excuse … and sales are collapsing to these levels…. this is big trouble…

        Me thinks it is more the latter because we have seen multi month crashes in the UK now … and China and the US are both seeing declines ….

        The auto industry would surely qualify as one of Korowicz’s pillars …. if it topples…. it kicks off a deflationary death spiral…

        I fail to see how the declines are halted given the massive stimulus that has already been directed at consumers allowing them to purchase vehicles in recent years.

        Are we at the edge of the cliff now … or is this just another false alarm?

        • Dan says:

          My spidey sense is telling me a cliff is nearby.

          If you have ever walked in the woods at night just following your own natural instincts with no use of a light you can sense when the terrain changes.

          I get what your saying about the emission controls and people wanting to potentially hold off until they are further priced in or having bought early to beat the new costs but the fact is the auto industry has priced their customers out.

          Soon oil producers will price their customers out. You can make the argument that its out of necessity but it ain’t gonna be sustainable and then the reckoning comes.

        • DJ says:

          “Apparently some purchases were brought forward due to new emission controls… causing this massive drop …”

          It is like when subsidies get pulled of EVs, record last month, 0 the following.

    • The truth is there is indeed some re-balancing and waiting out for the new technology and emission standards to settle down ongoing. Diesel engines have had proven longevity and fuel economy while latest modern gasoline engines lack on comforts, longevity, power, and fuel economy is marginally better..

      However, almost as important or perhaps starting to be more pressing issues is the market saturation and demography pressures, young adults don’t like, need, nor can afford carz in Europe as much as they used to.

      Young have different options and preferences such as stylish sub 125cc scooters, posh electric bikes (in similar or even higher price), and Chinese cheap knock offs. Plus public train, subway transport infrastructure for it (e/bikes)..

      Or they increasingly just have nothing, i.e. stay put watching asocial networks on the screen.

      • Dan says:

        “Young have different options and preferences such as stylish sub 125cc scooters, posh electric bikes (in similar or even higher price), and Chinese cheap knock offs”.

        Rubbish. They “prefer” these alternatives because that is what they can afford.

        Who has ever been laid on the back of a 125cc scooter?

        answer no one.

  4. MG says:

    Crimea attack: College assault kills 17

    This outbreak of attacks at schools tells me that the school becomes something superfluous. Do we really need them, if many people think that they are a propaganda tool of the progress? My opinion is that spending so many years at schools learning things that you really do not need and when you can find all the stuff you need on the internet whenever you need, is really something energy inefficient.

    The schools providing higher education and where the students need to be present mainly because of being in care of somebody, when the parents are in work, are destined to die out, as the implosion proceeds.

    • Rodster says:

      When I went to school back in the 70’s you typically were taught a trade for free. Nowaday’s going to school is nothing more than a social gathering. Schools in the US today teach little of value to prepare for what’s left of our current system.

      I do agree with the internet there’s really little to no need for the present school systems. You can plug into the internet and join in as part of a school class. But herein lies the problem, what do you do with all the idle school buildings no longer used? What happens when local Govts can’t collect on taxes which are part of property taxes? What happens to all the unemployed extra school teachers?

      As Gail likes to point out, every SOLUTION creates it’s own set of PROBLEMS.

      • I think you are right about this.

        And universities are going increasingly to online classes. If it is possible to match this system with computer graded multiple-choice tests, a college teacher can teach a practically unlimited number of students, unless there are labs involved. In this case, the only live faculty are needed for the labs.

        • Rodster says:

          The difference with college though is that in most cases it’s pay to attend whereas up to HS is provided by the Govt. I recently watched a John Stossel “The College Scam” interview regarding the high price of tuitions and in the interview was a tenured professor who says 99.9% of college kids are unaware that they can Princeton College for free. Just move to the town and start attending classes.

      • zenny says:

        Some Countries like Canada will give you a living wage while you are in a free trade school.

      • Duncan Idaho says:

        Education wasn’t always a “capital” investment.
        If fact, if it was, it was “training”——
        One was often educated to be unemployable in our capitalistic system.

    • Slow Paul says:

      It has really become a kindergarden for adolescents and young adults. In most cases you only learn basic facts of language, history, science for 13 years. Useful skills and knowledge are learned through experience, not sitting on a chair all day.

      • In fact, young people going to universities and private colleges may find that what they learn in not particularly helpful for actually earning a living. My guess is that there are far more art history majors, and far more gender studies majors, than there are jobs in those fields. Engineers perhaps can get related jobs, but an awfully lot of other majors cannot. Too often, a college degree is just a proxy for some other characteristics, such as willingness to stick through a major project to the end. Now that so many people have college degrees, employers can demand them for jobs that previously did not require them.

        • MG says:

          The universities now are mostly only for creating jobs for those who teach and work at them. The universities create fields of study that sound attractive, but are completely useless. It is all about marketing – getting more students out of the ageing populations: a fierce fight.

          • Right. Our problem now is lack of demand. Adding a “need” to go to the university is a way of pumping up demand, especially if attending the university can be funded by debt.

            The Great Recession added many students to universities. People who could not get jobs decided to take out loans and go back to school, so that they could learn some new trade that might be more salable. Outside organizations built fancy “residence halls” (using debt) to be able to house young people while they went to school. Also, food service keeps getting upgraded to a more upscale experience. The university where my husband teaches added a football team, which is being paid for by a higher student activity fee. My husband’s understanding is that one of the reasons for adding football is because football teams attract male students; male graduates are better donors to universities than female graduates.

            • Fast Eddy says:

              If I was in my 20’s…. I’d be pursuing one PHD after another …. I’d start with basket weaving… and go from there…. might even give the transgender studies thing a try…. for each thesis I’d require spending the summer studying each phenomenon in a foreign country…. paid for by research grants….

  5. Hubbs says:

    Just an anecdotal FWIW: I went to a western NC Dept of Education meeting to inquire about being a substitute teacher. This was for Buncombe County (Asheville, NC ) only. I was stunned by the size and largesse of the building complex, complete with an auditorium, number of employees etc.
    I had been informed that it cost roughly $10,000 per pupil per school year for high school level education- and that was several years ago. No wonder. During a meeting at the high school meet-the-teachers event, I asked my daughter’s civics and economics (they call it “civics” now instead of American History) teacher to confirm that the curriculum is based on what the state requires. He said yes. Then I asked him quite inquisitively if any time was spent outlining the history of the FED, fractional banking, gold standard vs fiat currency- just a few simple topics, and he said no. My daughter informs me that they do educate you on how to balance your check book, a savings account and a few functions like that.

    • I am always astounded by the funds spent on buildings for education today. Dorms are especially outlandish. Food service areas are far fancier than the simple “take it or go without” cafeterias of earlier days. My husband says the upgrades are to go with upgrades everywhere else. Now that we seem to be richer, and there are a variety of restaurants to choose from, and a variety of universities, everyone needs to keep up with everyone else.

    • aaaa says:

      I don’t think there was much awareness of fractional reserve banking until the 2000s. I never heard of it in the economics courses that I took in college, just a bunch of gobledeegook about demand/supply curve extrapolations.

  6. Chrome Mags says:

    Tesla buys the land it needs for its Shanghai Gigafactory
    It paid over $140 million for around 860,000 square meters.

    • The fun part is that production might end up on US/EU market instead as EMs tend to plow through recession/depression sooner and deeper.
      Btw. not complaining the more batt packs out there (potentially for me) the better..

  7. Sven Røgeberg says:

    We don’t need religion, just a correct story about who we really are, according to Nick Hanauer, winner of the 2018 Harvard and MIT Humanist of the Year award.
    «Dr. King said, “the arc of the moral universe is long, but it bends toward justice.” In the same way, thanks to the fundamental evolutionary logic of the market, the arc of the economic universe bends toward complexity. And these two arcs are just part of a larger circle that is anchored by justice, which creates the trust, that enables cooperation, which produces the complexity from which our prosperity emerges.
    So this is the main point of my remarks: Properly viewed through this prosocial economic lens, we see clearly that it is our humanity, not the absence of it, that is the source of our prosperity.»

      • Third World person says:

        but those dysfunctional society

        need to be religious to have some meaning of they life
        or the society will go straight in to anarchy

      • The more a society is convinced that we humans are in charge, and can keep our system going endlessly, the less there is a need for religion.

        The more functions that governments provide (handouts to the poor, pensions for the elderly, free health care and education), the less is the need for a religion to talk about looking after the needs of the poor and the elderly. Whether the governments can really maintain these problems for the long-term is doubtful, but it gives citizens confidence that they are being cared for, by an everlasting system.

        Religions tend to bind people together into rather small groups. This does indeed to lead to between-group friction. But it also has a protective effect for the group that is bound together. Depending on where in the cycle of growth, stagflation, collapse a society is, such smaller groups can be helpful. For example, if there are not enough resources for all, perhaps some of the groups that are bound together closely can be ones that make it through the to the next part of the cycle. An individual on his own cannot; the total group cannot, but perhaps a smaller group can together carry on. Dmitry Orlov makes the claim that persecution of a group gives it better cohesion. I can believe this to be true.

        When we are at “peak economy” (thanks to a big debt bubble and many energy resources), religion looks pretty unnecessary. I am not convinced this is true for the long run.

        • Maybe this sums up our current mess:

          the planet that we live on
          allowed our lives to be
          until we chose to trash it
          and call it property

          Fire was our first mistake
          but warming were the flames
          not knowing in our cleverness
          we burned away our dreams

          using fire we forced our land
          behind a fence and wall
          then fought hard for possession
          of what was meant for all

          then we created money
          our busy’ness to allow
          while destroying that very thing
          on which our living drew

          our population on the planet
          was by pestilence unfazed
          or wars that culled our numbers
          and gods that made us crazed

          now our world has had enough
          and we must be got rid
          we finally messed up our lease
          and had eviction served

          to be washed away by water
          or fried by heated air
          and poisoned by the fuels
          we burned without a care

          our planet has a fever
          caused by humankind
          and now can only cure itself
          by leaving us behind

          View story at

          • Fast Eddy says:

            We should attend Koombaya Environmental Konferences around the world … and hoist placards with statements like ‘Save the World – Suffocate a Baby Today!’ …. ‘Save the World — Open Fire on a Crowd of Humans NOW!’…. ‘Save the World – Humans MUST DIE!’

            I wonder how that would go over….

    • MG says:

      We have no other solution to our fate than religion, as the religion gives us hope for something after the inevitable death of our species.

      The humanity was created by additional energy. The additional energy allowed our species to create machines instead of exploiting other species or one another as predators.

      We named that energy God.

      There is really no humanity without energy. As there are no humans without energy.

      We are vulnerable naked species that need energy, as the energy allowed us to be protected better than with furr or feathers.

      There is no such thing as naked human, as naked humanity is humanity without energy. Our clothes represent the additional energy we need. The same way as the houses, their heating etc.

      Humanity is an organism supplied with roads, rivers, pipes, cables and made clean using the same roads, rivers, pipes, cables. The infrastructure based on the energy cleans us from other species.

      We need to be encapsulated against other species and elements of the nature. The use of fire and water allows us to be superior above other species: kill other species with fire and make them our food using water. Wash them from our bodies with water. Use fire for destilling products that can kill germs.

      There is really no such thing as humanity without additional energy that can be controlled by our species.

      Our belief in God is the belief that there is some energy that we can control and use in our favour. As the energy protecting human species is only such energy, that we can control or that acts for our sole benefit, against everything else and against other species.

      • There really is some literal Higher Power behind all of the energy flows that we and early humans encountered all of the time.

        The dispute is whether there is any possibility that this Higher Power is acting on humans’ behalf. Many people think that this idea is ridiculous, but others see a whole pattern of coincidences that work out favorably in their own lives. They see evidence of some Higher Power than seems to be as active as ever. Given this situation, they see a point in believing that the Higher Power may continue to act on behalf of humans.

        Even if the belief turns out not to be true, there can be a definite benefit in believing it. One of humans’ problems today is isolation from other humans. Chatting over the internet is not a proper substitute. If nothing else, religious groups give people a chance to meet on a face to face basis with others like themselves. Religious groups also tend to form bonds with each other, especially if they are persecuted. For this reason, in times of adversity, religious groups of people can be expected to be more durable than people acting on their own, with no belief in a Higher Power. It is the close bonds with others that are needed to survive adversity.

        • Fast Eddy says:

          The sun appears to be the higher power.

          The reason we are encountering all these terrible problems… the reason why so many are suffering…

          Is because we – as a species — stopped worshipping the sun.

          And the sun God is now punishing us. He is threatening to extinct us.

          Forget about EVs and solar and wind and all that….

          Those are obviously futile…

          What we MUST urgently do is bulldoze all the fake temples to the fake gods… burn korans and bibles .. refute all this fakery…

          And bow down to the true power … to the true font of life… to the giver of all energy … time is short… get on your knees NOW!

          • Kowalainen says:

            Indeed the sun was important in most pagan religions.

            Then came the desert religions, islam, christianity, judaism and buried the sane idea of sun worship.

            Yes, I agree, burn all world religions except buddhism and shintoism.

          • Kowalainen says:

            Isn’t our “god” at OFW a magnificient piece of phenomena?

            Much better than any human religious artifact such as a book or deity, ever, ever, ever can aspire to be.

            • Fast Eddy says:

              And to boot… I am pretty sure the sun is real… I can feel it’s heat… it seems to make the grass and trees grow (so I am told)… the rise of the sun correlates with the end of darkness… so I assume it brings light….

          • sacrificing a virgin every night to ensure the sun came up next morning always seemed a bit of a waste though

            • Fast Eddy says:

              Depends on the calibre…

            • i forgot to say male or female virgin—in this era of equal opportunities, we cannot overlook that

            • If your population is rising too quickly, it is as good a way as any of getting the population to flatten. Virgins by definition don’t have children, so don’t leave the problem of children for the community to take care of. Also, by the teen years, it was possible to see which ones had real possibilities and which ones didn’t. You can guess which ones were sacrificed.

  8. Fast Eddy says:

    The global carmageddon wave is spreading: just two weeks after the US reported its worst auto sales in years – now ex dealer incentives, and just days after the latest Chinese data showed passenger-car purchases by dealerships plunged 12% from a year earlier to just over 2 million units in September, the biggest drop on record…

    … the auto weakness has hit Europe, where passenger car registrations in Europe slumped 23% during September after new emissions test rules took hold, reversing August gains when automakers were hurrying vehicles out the door to beat the deadline.

  9. Fast Eddy says:

    And the doctors says ‘but you don’t have cancer… why are you hitting me’????????

  10. Fast Eddy says:

    Angry Renter
    Oct 17, 2018 at 2:53 pm
    How does one preserve wealth in this new dynamic? Stocks down, real estate down, bond prices down yields up, emerging markets down…

    Short ETFs aren’t good to hold more than a day. Maybe try to get lucky and short a specific company that I think will fail? That’s not really my skill set.

    What to do? I invest in building out my own business, I can at least bet on me. But with the rest…is there anything smarter than to just move to cash and/or short duration T-bills and ride the interest rate hikes up, then move back into stocks in a year or so?

    Oct 17, 2018 at 4:11 pm
    “How does one preserve wealth”

    Usually the defensive for this is Money Market funds. While bond prices are tanking, buying short duration bonds (say 1–2 year treasuries) and just holding them until they redeem is a perfectly safe way to preserve wealth in the current situation. Others prefer PMs like gold, but those are risky and don’t correlate as cleanly in going up with the current type of market situation as well as their proponents imagine PMs do. One thing doing well recently that should continue to do so is $AGND – a bond fund that uses some of the would-be-dividends to short the bond-market giving a bond-latter average of effective NEGATIVE five years of duration allowing it to go up as bonds fall. I am not really a fan of $DYB – if your read the prospectus for $DYB it sounds fantastic and exactly like what you would want for this, but in reality it is mostly just moving sideways (maybe things will change with $DYB if and when things really hits the fan, but I wouldn’t know).

    Just some thoughts, I hope you find something you like.

    The vermin is squirmin… on the deck of the Titanic!

    ‘Preserve wealth’ ba hahahahahaha!!!

    Wealth is going to vapourize… there are no safe havens… (Sorry Steve over at rocco report … gold ain’t gonna help you)…

    These fools need to follow the FE Strategy — if you have any excess income … do NOT invest it … because that is going to zero… spend it… buy a fast car… take a few vacations… maybe some fine wine… if ho okers and bl ow are your thing… then by all means – indulge.

    Absolutely do NOT invest in a DD homestead — that is futile and will only make you a target during the Apocalypse that is coming

    There ain’t gonna be no reset …. when she goes she goes…. all assets go to ZERO — cash becomes worthless paper … in fact you’d be better off burning your cash in a fire and roasting wieners than investing it.

    If anyone would like more specific advice… go to …. for 10% front end load … FE will give you ideas as to how to ‘invest’ your extra cash in frivolous pursuits.

    • Davidin100millionbilliontrillionzillionyears says:

      frivolous pursuits:

      I prefer gambling on sports…

      • Fast Eddy says:

        Nothing wrong with that…

        • Lastcall says:

          Yay we almost at 20th, and I have arranged payment on 19th, ahead of the long weekend.
          Waiting 26 years for trees to grow was easy; logging them and waiting last 3 weeks for payment was a struggle! Can now buy my electric bike and solar panel and follow the sun!

        • Lastcall says:

          ‘What to do? I invest in building out my own business, I can at least bet on me. But with the rest…is there anything smarter than to just move to cash and/or short duration T-bills and ride the interest rate hikes up, then move back into stocks in a year or so?’

          ‘…I can at least bet on me.’ ..And here is the problem; no recognition that you are in fact betting on a ‘whole system’ not just on you. Individual success is entirely a product of the success of entrenched support systems. Well, unless your idea of taking a bet is exporting yourself back to a hunter gatherer community and betting they won’t eat you.

    • It is easy to think that funds based on derivatives will preserve wealth, but once the market (and currencies) start making rapid moves, derivatives suddenly become dangerous. There is the chance of quite a few bankrupt players in the system.

    • People should read and watch recent work by Charles H. Smith, he does sequencing, predicts there will be wave of corporate defaults as the announced driver of the meltdown, and events preceding it and stemming from it (likely another gov/CBs liftathlon)..

      Obviously we are not there yet, in any of these stages fully developed for the moment.
      And it won’t be universal instadoom either..

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