Low Oil Prices: An Indication of Major Problems Ahead?

Many people, including most Peak Oilers, expect that oil prices will rise endlessly. They expect rising oil prices because, over time, companies find it necessary to access more difficult-to-extract oil. Accessing such oil tends to be increasingly expensive because it tends to require the use of greater quantities of resources and more advanced technology. This issue is sometimes referred to as diminishing returns. Figure 1 shows how oil prices might be expected to rise, if the higher costs encountered as a result of diminishing returns can be fully recovered from the ultimate customers of this oil.

Figure 1. Chart showing expected long-term rise in oil prices as the full cost of oil production becomes increasingly expensive due to diminishing returns.

In my view, this analysis suggesting ever-rising prices is incomplete. After a point, prices can’t really keep up with rising costs because the wages of many workers lag behind the growing cost of extraction.

The economy is a networked system facing many pressures, including a growing level of debt and the rising use of technology. When these pressures are considered, my analysis indicates that oil prices may fall too low for producers, rather than rise too high for consumers. Oil companies may close down if prices remain too low. Because of this, low oil prices should be of just as much concern as high oil prices.

In recent years, we have heard a great deal about the possibility of Peak Oil, including high oil prices. If the issue we are facing is really prices that are too low for producers, then there seems to be the possibility of a different limits issue, called Collapse. Many early economies seem to have collapsed as they reached resource limits. Collapse seems to be characterized by growing wealth disparity, inadequate wages for non-elite workers, failing governments, debt defaults, resource wars, and epidemics. Eventually, population associated with collapsed economies may fall very low or completely disappear. As Collapse approaches, commodity prices seem to be low, rather than high.

The low oil prices we have been seeing recently fit in disturbingly well with the hypothesis that the world economy is reaching affordability limits for a wide range of commodities, nearly all of which are subject to diminishing returns. This is a different problem than most researchers have been concerned about. In this article, I explain this situation further.

One thing that is a little confusing is the relative roles of diminishing returns and efficiency. I see diminishing returns as being more or less the opposite of growing efficiency.

Figure 2.

The fact that inflation-adjusted oil prices are now much higher than they were in the 1940s to 1960s is a sign that for oil, the contest between diminishing returns and efficiency has basically been won by diminishing returns for over 40 years.

Figure 3.

Oil Prices Cannot Rise Endlessly

It makes no sense for oil prices to rise endlessly, for what is inherently growing inefficiency. Endlessly rising prices for oil would be similar to paying a human laborer more and more for building widgets, during a time that that laborer becomes increasingly disabled. If the number of widgets that the worker can produce in one hour decreases by 50%, logically that worker’s wages should fall by 50%, not rise to make up for his/her growing inefficiency.

The problem with paying higher prices for what is equivalent to growing inefficiency can be hidden for a while, if the economy is growing rapidly enough. The way that the growing inefficiency is hidden is by adding Debt and Complexity (Figure 4).

Figure 4.

Growing complexity is very closely related to “Technology will save us.” Growing complexity involves the use of more advanced machinery and ever-more specialized workers. Businesses become larger and more hierarchical. International trade becomes increasingly important. Financial products such as derivatives become common.

Growing debt goes hand in hand with growing complexity. Businesses need growing debt to support capital expenditures for their new technology. Consumers find growing debt helpful in affording major purchases, such as homes and vehicles. Governments make debt-like promises of pensions to citizen. Thanks to these promised pensions, families can have fewer children and devote fewer years to child care at home.

The problem with adding complexity and adding debt is that they, too, reach diminishing returns. The easiest (and cheapest) fixes tend to be added first. For example, irrigating a field in a dry area may be an easy and cheap way to fix a problem with inadequate food supply. There may be other approaches that could be used as well, such as breeding crops that do well with little rainfall, but the payback on this investment may be smaller and later.

A major drawback of adding complexity is that doing so tends to increase wage and wealth disparity. When an employer pays high wages to supervisory workers and highly skilled workers, this leaves fewer funds with which to pay less skilled workers. Furthermore, the huge amount of capital goods required in this more complex economy tends to disproportionately benefit workers who are already highly paid. This happens because the owners of shares of stock in companies tend to overlap with employees who are already highly paid. Low paid employees can’t afford such purchases.

The net result of greater wage and wealth disparity is that it becomes increasingly difficult to keep prices high enough for oil producers. The many workers with low wages find it difficult to afford homes and families of their own. Their low purchasing power tends to hold down prices of commodities of all kinds. The higher wages of the highly trained and supervisory staff don’t make up for the shortfall in commodity demand because these highly paid workers spend their wages differently. They tend to spend proportionately more on services rather than on commodity-intensive goods. For example, they may send their children to elite colleges and pay for tax avoidance services. These services use relatively little in the way of commodities.

Once the Economy Slows Too Much, the Whole System Tends to Implode

A growing economy can hide a multitude of problems. Paying back debt with interest is easy, if a worker finds his wages growing. In fact, it doesn’t matter if the growth that supports his growing wages comes from inflationary growth or “real” growth, since debt repayment is typically not adjusted for inflation.

Figure 5. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

Both real growth and inflationary growth help workers have enough funds left at the end of the period for other goods they need, despite repaying debt with interest.

Once the economy stops growing, the whole system tends to implode. Wage disparity becomes a huge problem. It becomes impossible to repay debt with interest. Young people find that their standards of living are lower than those of their parents. Investments do not appear to be worthwhile without government subsidies. Businesses find that economies of scale no longer work to their advantage. Pension promises become overwhelming, compared to the wages of young people.

The Real Situation with Oil Prices

The real situation with oil prices–and in fact with respect to commodity prices in general–is approximately like that shown in Figure 6.

Figure 6.

What tends to happen is that oil prices tend to fall farther and farther behind what producers require, if they are truly to make adequate reinvestment in new fields and also pay high taxes to their governments. This should not be too surprising because oil prices represent a compromise between what citizens can afford and what producers require.

Figure 7. Illustration indicating that the world has already reached a point where no oil price works for both oil suppliers and oil consumers.

In the years before diminishing returns became too much of a problem (back before 2005, for example), it was possible to find prices that were within an acceptable range for both sellers and buyers. As diminishing returns has become an increasing problem, the price that consumers can afford has tended to fall increasingly far below the price that producers require. This is why oil prices at first fall a little too low for producers, and eventually seem likely to fall far below what producers need to stay in business. The problem is that no price works for both producers and consumers.

Affordability Issues Affect All Commodity Prices, Not Just Oil

We are dealing with a situation in which a growing share of workers (and would be workers) find it difficult to afford a home and family, because of wage disparity issues. Some workers have been displaced from their jobs by robots or by globalization. Some spend many years in advanced schooling and are left with large amounts of debt, making it difficult to afford a home, a family, and other things that many in the older generation were able to take for granted. Many of today’s workers are in low-wage countries; they cannot afford very much of the output of the world economy.

At the same time, diminishing returns affect nearly all commodities, just as they affect oil. Mineral ores are affected by diminishing returns because the highest grade ores tend to be extracted first. Food production is also subject to diminishing returns because population keeps rising, but arable land does not. As a result, each year it is necessary to grow more food per arable acre, leading to a need for more complexity (more irrigation or more fertilizer, or better hybrid seed), often at higher cost.

When the problem of growing wage disparity is matched up with the problem of diminishing returns for the many different types of commodity production, the same problem occurs that occurs with oil. Prices of a wide range of commodities tend to fall below the cost of production–first by a little and, if the debt bubble pops, by a whole lot.

We hear people say, “Of course oil prices will rise. Oil is a necessity.” The thing that they don’t realize is that the problem affects a much bigger “package” of commodities than just oil prices. In fact, finished goods and services of all kinds made with these commodities are also affected, including new homes and vehicles. Thus, the pattern we see of low oil prices, relative to what is required for true profitability, is really an extremely widespread problem.

Interest Rate Policies Affect Affordability

Commodity prices bear surprisingly little relationship to the cost of production. Instead, they seem to depend more on interest rate policies of government agencies. If interest rates rise or fall, this tends to have a big impact on household budgets, because monthly auto payments and home payments depend on interest rates. For example, US interest rates spiked in 1981.

Figure 8. US short and long term interest rates. Graph by FRED.

This spike in interest rates led to a major cutback in energy consumption and in GDP growth.

Figure 9. World GDP Growth versus Energy Consumption Growth, based on data of 2018 BP Statistical Review of World Energy and GDP data in 2010$ amounts, from the World Bank.

Oil prices began to slide, with the higher interest rates.

Figure 10.

Figure 11 indicates that the popping of a debt bubble (mostly relating to US sub-prime housing) sent oil prices down in 2008. Once interest rates were lowered through the US adoption of Quantitative Easing (QE), oil prices rose again. They fell again, when the US discontinued QE.

Figure 11. Figure showing collapsing debt bubble at the time US oil prices peaked, and the use of Quantitative Easing (QE) to stimulate the economy, and thus bring prices back up again.

While these charts show oil prices, there is a tendency for a broad range of commodity prices to move more or less together. This happens because the commodity price issue seems to be driven to a significant extent by the affordability of finished goods and services, including homes, automobiles, and restaurant food.

If the collapse of a major debt bubble occurs again, the world seems likely to experience impacts somewhat similar to those in 2008, depending, of course, on the location(s) and size(s) of the debt bubble(s). A wide variety of commodity prices are likely to fall very low; asset prices may also be affected. This time, however, government organizations seem to have fewer tools for pulling the world economy out of a prolonged slump because interest rates are already very low. Thus, the issues are likely to look more like a widespread economic problem (including far too low commodity prices) than an oil problem.

Lack of Growth in Energy Consumption Per Capita Seems to Lead to Collapse Scenarios

When we look back, the good times from an economic viewpoint occurred when energy consumption per capita (top red parts on Figure 12) were rising rapidly.

Figure 12.

The bad times for the economy were the valleys in Figure 12. Separate labels for these valleys have been added in Figure 13. If energy consumption is not growing relative to the rising world population, collapse in at least a part of the world economy tends to occur.

Figure 13.

The laws of physics tell us that energy consumption is required for movement and for heat. These are the basic processes involved in GDP generation, and in electricity transmission. Thus, it is logical to believe that energy consumption is required for GDP growth. We can see in Figure 9 that growth in energy consumption tends to come before GDP growth, strongly suggesting that it is the cause of GDP growth. This further confirms what the laws of physics tell us.

The fact that partial collapses tend to occur when the growth in energy consumption per capita falls too low is further confirmation of the way the economics system really operates. The Panic of 1857 occurred when the asset price bubble enabled by the California Gold Rush collapsed. Home, farm, and commodity prices fell very low. The problems ultimately were finally resolved in the US Civil War (1861 to 1865).

Similarly, the Depression of the 1930s was preceded by a stock market crash in 1929. During the Great Depression, wage disparity was a major problem. Commodity prices fell very low, as did farm prices. The issues of the Depression were not fully resolved until World War II.

At this point, world growth in energy consumption per capita seems to be falling again. We are also starting to see evidence of some of the same problems associated with earlier collapses: growing wage disparity, growing debt bubbles, and increasingly war-like behavior by world leaders. We should be aware that today’s low oil prices, together with these other symptoms of economic distress, may be pointing to yet another collapse scenario on the horizon.

Oil’s Role in the Economy Is Different From What Many Have Assumed

We have heard for a long time that the world is running out of oil, and we need to find substitutes. The story should have been, “Affordability of all commodities is falling too low, because of diminishing returns and growing wage disparity. We need to find rapidly rising quantities of very, very cheap energy products. We need a cheap substitute for oil. We cannot afford to substitute high-cost energy products for low-cost energy products. High-cost energy products affect the economy too adversely.”

In fact, the whole “Peak Oil” story is not really right. Neither is the “Renewables will save us” story, especially if the renewables require subsidies and are not very scalable. Energy prices can never be expected to rise high enough for renewables to become economic.

The issues we should truly be concerned about are Collapse, as encountered by many economies previously. If Collapse occurs, it seems likely to cut off production of many commodities, including oil and much of the food supply, indirectly because of low prices.

Low oil prices and low prices of other commodities are signs that we truly should be concerned about. Too many people have missed this point. They have been taken in by the false models of economists and by the confusion of Peak Oilers. At this point, we should start considering the very real possibility that our next world problem is likely to be Collapse of at least a portion of the world economy.

Interesting times seem to be ahead.



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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1,594 Responses to Low Oil Prices: An Indication of Major Problems Ahead?

  1. Yoshua says:

    U.S bank assets outside of treasuries have started to shrink. They haven’t done that since the GFC in 2008-09.

    • Davidin100millionbilliontrillionzillionyears says:

      right now, I’m sitting in a comfy chair with a video screen in front of me…

      the room is dry and quite warm, while beyond the walls, the air is damp and quite cold…

      I just had an evening snack, but I may open up a bar of dark chocolate…

      earlier today, I finished up my 40+ hour work week…

      now there are about 55 hours in front of me to do other things…

      too bad that I’m trapped in this maze with no escape…

      to be sure, this maze is not my creation, but I was born into it…

      I usually somewhat enjoy my time here, including the working hours…

      I could try to find a good way out of this maze, but I am quite sure that my efforts would be futile…

      alas, I learned at a young age that there is a way out, and everyone eventually finds the exit, usually after no more than 90 to 100 years…

      but it seems to be a mostly unpopular option…

  2. Baby Doomer says:

    Shale-Oil Growth Down 30%: That Could Spell $100-Brent In 2019

    International Energy Agency (I.E.A) and Schlumberger have been quietly warning of a potential supply crunch caused by under-investment in conventional oil.

    If the trend in shale-oil growth continues down, the crunch they are talking about could be in 2019.

    Market disruptions are common when new ideas come along; and participants have problems pricing because there are few precedents. Dot.com was an example, so were the derivatives that led to the financial meltdown in 2008.

    There are signs shale oil might turn out to have been a similar story, currently unfolding. What is not commonly understood is because legacy losses are so high, a 10% increase in new production gives a 60% increase in the total shipments, that explains the 2.4 million barrels per day increase in total shale oil shipments over the past two years; that’s more oil than OPEC took off the table. But a 10% drop in new production delivers a 60% drop in shipments.

    There are signs shale oil might turn out to have been a similar story, currently unfolding. What is not commonly understood is because legacy losses are so high, a 10% increase in new production gives a 60% increase in the total shipments, that explains the 2.4 million barrels per day increase in total shale oil shipments over the past two years; that’s more oil than OPEC took off the table. But a 10% drop in new production delivers a 60% drop in shipments.

    According to the latest report by The International Energy Agency (I.E.A.), if U.S. shale oil does not increase production by 1.6 million barrels per day per year, next year, and the year after, and the year after and Amen, there will be a “supply-shock”. The CEO of Schlumberger has a similar view.

    Over the past five months the trend in new-shale oil went from 150,000 barrels per day per month (i.e. average 1.8 million barrels per day per year), to 100,000 (i.e. 1.2 million barrels per day per year); the trend-line is pointing at zero by mid 2019. I believe there is a real risk that the war that OPEC denies they were waging; could have created the World’s Worst Nightmare, with OPEC and Russia as the main beneficiaries.

    The spike to 3.0 million in August 2018 was not all about shale; it was mostly due to offshore oil, sanctioned before the bust, coming on line. There is not much more of that in the pipeline. Notice the down-tick in shale-oil after August.

    Last but not least, is the trend in legacy-loss (red-line), right now shale needs to find 500,000 barrels per day new oil every month, just so as to stay-even; that number is going up; when it equals I.P.; that’s Peak-Shale, in other words, that’s the end of the road.

    Don’t be surprised if peak-shale comes in 2019, and if that happens, don’t be surprised if the supply-crunch the I.E.A. warned of, comes sooner than anyone was expecting.


    • Or maybe it will look like demand falling flat.

      • Baby Doomer says:

        Demand doesn’t slow down when you are adding around one billion more people to the worlds population ever 12 years..

        • It does if energy consumption Per Capita falls. There are not enough jobs that pay well for all of these folks. It is not people, per se, that provide demand. It is the overall functioning of the system.

          • Baby Doomer says:

            Pretty much all of the worlds oil demand is coming from Asia.. And since 1970, Asia’s per capita incomes have increased fivefold. So there is no per capita issues with them..You are just scared of peak oil..

            • I am afraid there is a problem with Asia. What happened in the distant past is not the issue; it is what is happening now. In a networked world, part of Asia’s damand comes from around the world. Without demand from around the world, there is a problem. But even locally, things have not been going so well. Growth is not keeping up with what has been promised in debt. We have been counting on Asia to pull us along, and that is not realy possible any more.

          • Niels Colding says:

            Demand is the permanent wish you have to buy, buy, buy.Affordability is the reality that hits you when you realise that your wishes cannot be fulfilled. (My demand for et brand new Mercedes is always there in my mind, but I cannot afford it).

        • Greg Machala says:

          If the energy is unaffordable then there is no “demand”. If the energy is unprofitable there is no investment into oil discovery. It is such a conundrum. The Goldilocks zone of affordability/profitability is long gone. Traditional economics no longer applies to oil prices and production.

          • Hubbs says:

            “Traditional economics no longer applies to oil prices and production.”
            Amen, and that’s an excellent place to start. (so maybe I can figure it out myself!)
            Minimum wage earners can not afford $30,000 total knee replacements, and as we shall see, Medicare will eventually go bankrupt, and /or the hospitals relying on such government largess (Medicare/Medicaid) will suffer, as then will the Medical implant makers Stryker, Johnson and Johnson, Smith and Nephew, Medtronic, etc., etc., Medical insurance companies, United Health etc. will lose former healthy customers who can no longer afford the premiums, or they suddenly find their employers can’t or are unwilling to pay. (BTW, IMO the best, fastest predictor of whether a person is a good health insurance risk is simply to determine whether he is holding a full-time job. A sick or chronically ill person can’t hold a full-time job, or conversely, in order to keep a full-time job, you have to be healthy.) Health care is a mess. (Two hours on the phone today to just renew my non Obama care approved (ACA) temporary policy for 10 months until I have to switch to Medicare. But remember computers are supposed to save time? Right! like electronic hospital records EHR and electronic medical records EMR.

            Both health and energy are a cluster of counter-intuitive negative feedback loops. I predict health care will be RATIONED, first evidenced by the withholding of services at the VA Hospitals for example, then dialysis or other chronic diseases, and from there, corporate medicine etc. will be cut to preserve the bottom line, and there will be an epic battle between health care insurers vs the hospital providers. The physicians, ironically now classified as “providers” are upon to be chewed as over 50% are now employed by health care corporations who are already starting to tighten the screws on physician reimbursement.

            In the same way, the cost of energy for the common man (gas, heating oil, etc.) will go up to the point that he can no longer afford it, especially when the whole system is drowning in debt (consumer, corporate, government), and demand drops. The demand destruction will outpace the traditional increased “supply. ” The tail now wags the dog.

            • Davidin100millionbilliontrillionzillionyears says:

              “In the same way, the cost of energy for the common man (gas, heating oil, etc.) will go up to the point that he can no longer afford it, especially when the whole system is drowning in debt (consumer, corporate, government), and demand drops. The demand destruction will outpace the traditional increased “supply.””

              I agree…

              that’s why 2019 may see lower oil prices, even if “supply” decreases…

              I think that a global recession looks very likely in 2019, and that almost guarantees that “the common man” will find energy to be less affordable…

              I mean, there are many ways to string together words to explain this…

              if supply decreases in 2019, then it remains to be seen if lower demand/affordability will “outpace” the lower supply…

              some nations are ready to cut production in January, so decreasing supply may “outpace” demand destruction for early 2019…

              and prices may rise temporarily…

              or not…

              I’ve called it a race…

              so that’s why I appreciate the word “outpace”…

              I don’t see how a 2019 global recession will lead to higher FF prices…

        • Your chart is oil. The problem is total energy, another difference.

    • Duncan Idaho says:

      That’s when we start worrying about seized tankers, not peak oil.

    • Slow Paul says:

      And how many of those barrels does the shale business use itself just to spin their wheels?

  3. Harry McGibbs says:

    “Global debt hit a record $184 trillion last year, equivalent to more than $86,000 per person — more than double the average per-capita income.

    “Borrowing is led by the U.S., China, and Japan, the three biggest economies, the International Monetary Fund said Thursday, highlighting potential risks to global expansion given that their share of debt exceeds that of output. Overall, the amount of worldwide public and private debt is equal to about 225 percent of gross domestic product.”


  4. Harry McGibbs says:

    “European carmakers couldn’t shake the slump that’s shadowed them since September as new car registrations declined for the third month in a row — adding fresh worries to an industry already facing declines in its largest market.”

    Registrations fell 8.1% yoy.


    • Harry McGibbs says:

      “French business activity plunged unexpectedly into contraction this month, retreating at the fastest pace in over four years in the face of violent anti-government protests, a monthly survey showed on Friday.”


      • Harry McGibbs says:

        “Once again, British Prime Minister Theresa May has returned from Brussels empty-handed…

        “An EU diplomat told CNN before the meeting that the other 27 EU nations were looking to May to “convince” them she can get the withdrawal agreement through the UK Parliament, something she appears to have failed to do.

        “”We’ve seen what happened (on Wednesday). Convince us that what you ask will make a difference. If she pulls that off then we can talk… in the end they are politicians and they will want to help her. We are ready to be convinced,” the diplomat said.

        “The diplomat added that the “most likely scenario is stumbling into a no deal.”


      • So most of Western Europe plus Japan seem to be going into recession. China isn’t really growing, either.

        • xabier says:

          I’m already getting ‘Christmas Clearance’ emails from companies – no need to wait until the New Year. Looks rather unpromising for company trading results. Maybe 2019 will be the year of mass redundancies.

          So, in a year or less, we shall see what QE 2.0 looks like….

          I’m putting some nice wine (not extravagant, but guaranteed to cheer) in my cellar (the space under the sink!): what cheered people up in WW2 more than anything was a damn good drink.

          Coffee beans and, of course, high-quality dark chocolate. 🙂

          • Chrome Mags says:

            Our business is wrapping up one big job and trying to negotiate a contract on another that will pay the bills right through any 1.5 year recession, but the person keeps trying to cut the price down. Driving us batty, because we sense that if we don’t get it, we may go idle until we can land another job and if the recession hits hard, who knows how long that could be. So how far do we cut to keep the lights on but not so much we work for low wages? If our small business is going through that, I’m sure many others are as well, because we’ve been busy for 15 straight years, even through the 08/09 debacle. Only recently have we had difficulty in getting another job on the books. One of our sub-contractors is also thin on work and putting out calls all over to drum up business. This world better not go belly up on us but then again I suppose we have no control over it.

            • Davidin100millionbilliontrillionzillionyears says:

              “… if the recession hits hard…”

              could we already be there?

              I would keep in mind that recessions don’t seem to be “officially called” until many months after they have started…

              so, is it a choice between no work or lower paying work?

              then may you choose wisely…

            • xabier says:

              Good luck – all my customers (they were mostly US) disappeared for 5 years in 2005- 2010 : most unpleasant memories, but character-building!

              In retrospect I’m grateful that I went through that,as now nothing much can actually worry me or leave me sleepless, I just make adaptive plans.

              I should hate to have the responsibility of employing people at this juncture.

            • Artleads says:

              “so, is it a choice between no work or lower paying work?

              then may you choose wisely…”

              Nicely put. Learning to be happy with less means you can charge quite ridiculously low prices and live to tell about it.

  5. Harry McGibbs says:

    “The risk of a U.S. recession in the next two years has risen to 40 percent, according to a Reuters poll of economists who also found a significant shift in expectations toward fewer Federal Reserve interest rate rises next year.”


    • Harry McGibbs says:

      “Between 2012 and 2015 — a period when the recovery seemed to be gaining speed — nearly half of all counties nationwide saw flat or declining growth, according to new government data. More broadly, the Commerce Department figures highlight a stark and worrisome reality: While a handful of places around the U.S. are thriving, most regions are barely trudging ahead.”


      • Harry McGibbs says:

        “The national housing slowdown is spreading to markets like Las Vegas and Phoenix, where prices still haven’t reclaimed their pre-crisis peaks. After home values rose sharply this year, the market has shifted in recent weeks.

        “Prices fell slightly in November while the inventory of unsold homes in the Las Vegas region has roughly doubled compared with a year earlier, according to the Greater Las Vegas Association of Realtors. Existing home sales slowed nearly 12% in November compared with a year earlier.”


        • Harry McGibbs says:

          “Wall Street banks are offloading leveraged loans at discounted prices and demanding that borrowers accept less advantageous terms, as they move to protect themselves from rapidly weakening demand.”


          • Weakening demand is a real problem. Pops debt bubbles.

            By the way, my talk was very well received. I talked for 45 minutes on Wednesday, with lots of interruptions for discussion. I covered only 2/3 of the talk. On Thursday morning, one of the plenary speakers canceled out. The person in charge of our section asked me to come back, and talk some more about my presentation. So I completed the presentation, again with lots of discussion. All that was sceduled for later in the morning was presentation of academic papers by graduate students, and it was not clear that they would arrive much before the time they were originally scheduled.

            There were also some one on one sessions available later in the morning, which we could sign up for. So I left the student talks and explained my talk, first to a representative of the Electric Power Research Institute, and afterward to a representative of the American Petroleum Institute. The EPRI representative was especially interested. The talk was really aimed at electricity issues.

            I will be driving home today.

        • This pattern shouldn’t be a surprise, with rising interest rates

      • Interesting! Another way of showing increasing energy concentration among those areas that are already big users.

    • Davidin100millionbilliontrillionzillionyears says:

      “The risk of a U.S. recession in the next two years has risen to 40 percent…”

      yes, could be close to 100%…


      a) gov data could be fudged to make the negative number into a positive one…

      b) the lower 90+ % of the population could be falling economically, but the top 1% to 10% could do so well that it pushes the overall number positive…

      I’d guess this more likely:

      c) the recession is so severe that by the end of 2019, the gov data will have to show that the number is negative…

  6. Harry McGibbs says:

    “Beijing had high hopes that tax cuts for individuals would lift consumer spending and boost an economy which is showing the effects of the trade war, but overall retail sales in November proved disappointing.

    “Even record spend on Singles’ Day’ on November 11 could not prevent retail sales from posting their weakest growth rate in 15 years.”


  7. Sven Røgeberg says:

    “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” F.A. Hayek

  8. Artleads says:

    @ Norman Pagett

    A Rant for Santa Fe

    Why is there so much concern over fossil fuels and so little over development? If I’m correct that the soil contains twice as much carbon as the atmosphere, then why is there not consternation over cement production, or the massive scraping away of topsoil along south Cerrillos and the 599 corridor? I also just come across the photo of children digging for cobalt to put in batteries to power electric energy, but digging in deep pits with their bare hands. But that didn’t bother me as much as it did the poster. I’d rather see kids digging for cobalt than seeing their arms cut off due to the massive and genocidal wars over Congo minerals that go to run our computers. In the light of the Congo catastrophies that have cost over 5 million lives, I wonder if the west’s obsession with fossil fuels (which is the very reason for its civilization) might not need some recalibration?

    • xabier says:

      Congo….Congo? Hmm, when did I last see that on the front page? About as often as the starving Yemeni children….

  9. Chrome Mags says:

    Dow today -496.87

    “In November 2012, Donald Trump proclaimed on Twitter that “If the Dow drops 1,000 points in two days the President should be impeached immediately!”


    I don’t know if it’s done that yet, but if Trump stands by what he says, he may find himself impeached just on that comment alone fairly soon. All that would have to happen is for the market to go down 505 pts. on Monday. (Ok, so I know he’s not held to anything he says, but it was fun for a moment).

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