Why stimulus can’t fix our energy problems

Economists tell us that within the economy there is a lot of substitutability, and they are correct. However, there are a couple of not-so-minor details that they overlook:

  • There is no substitute for energy. It is possible to harness energy from another source, or to make a particular object run more efficiently, but the laws of physics prevent us from substituting something else for energy. Energy is required whenever physical changes are made, such as when an object is moved, or a material is heated, or electricity is produced.
  • Supplemental energy leverages human energy. The reason why the human population is as high as it is today is because pre-humans long ago started learning how to leverage their human energy (available from digesting food) with energy from other sources. Energy from burning biomass was first used over one million years ago. Other types of energy, such as harnessing the energy of animals and capturing wind energy with sails of boats, began to be used later. If we cut back on our total energy consumption in any material way, humans will lose their advantage over other species. Population will likely plummet because of epidemics and fighting over scarce resources.

Many people appear to believe that stimulus programs by governments and central banks can substitute for growth in energy consumption. Others are convinced that efficiency gains can substitute for growing energy consumption. My analysis indicates that workarounds, in the aggregate, don’t keep energy prices high enough for energy producers. Oil prices are at risk, but so are coal and natural gas prices. We end up with a different energy problem than most have expected: energy prices that remain too low for producers. Such a problem can have severe consequences.

Let’s look at a few of the issues involved:

[1] Despite all of the progress being made in reducing birth rates around the globe, the world’s population continues to grow, year after year.

Figure 1. 2019 World Population Estimates of the United Nations. Source: https://population.un.org/wpp/Download/Standard/Population/

Advanced economies in particular have been reducing birth rates for many years. But despite these lower birth rates, world population continues to rise because of the offsetting impact of increasing life expectancy. The UN estimates that in 2018, world population grew by 1.1%.

[2] This growing world population leads to a growing use of natural resources of every kind.

There are three reasons we might expect growing use of material resources:

(a) The growing world population in Figure 1 needs food, clothing, homes, schools, roads and other goods and services. All of these needs lead to the use of more resources of many different types.

(b) The world economy needs to work around the problems of an increasingly resource-constrained world. Deeper wells and more desalination are required to handle the water needs of a rising population. More intensive agriculture (with more irrigation, fertilization, and pest control) is needed to harvest more food from essentially the same number of arable acres. Metal ores are increasingly depleted, requiring more soil to be moved to extract the ore needed to maintain the use of metals and other minerals. All of these workarounds to accommodate a higher population relative to base resources are likely to add to the economy’s material resource requirements.

(c) Energy products themselves are also subject to limits. Greater energy use is required to extract, process, and transport energy products, leading to higher costs and lower net available quantities.

Somewhat offsetting these rising resource requirements is the inventiveness of humans and the resulting gradual improvements in technology over time.

What does actual resource use look like? UN data summarized by MaterialFlows.net shows that extraction of world material resources does indeed increase most years.

Figure 2. World total extraction of physical materials used by the world economy, calculated using weight in metric tons. Chart is by MaterialFlows.net. Amounts shown are based on the Global Material Flows Database of the UN International Resource Panel. Non-metallic minerals include many types of materials including sand, gravel and stone, as well as minerals such as salt, gypsum and lithium.

[3] The years during which the quantities of material resources cease to grow correspond almost precisely to recessionary years.

If we examine Figure 2, we see flat periods or periods of actual decline at the following points: 1974-75, 1980-1982, 1991, and 2008-2009. These points match up almost exactly with US recessionary periods since 1970:

Figure 3. Dates of US recessions since 1970, as graphed by the Federal Reserve of St. Louis.

The one recessionary period that is missed by the Figure 2 flat periods is the brief recession that occurred about 2001.

[4] World energy consumption (Figure 4) follows a very similar pattern to world resource extraction (Figure 2).

Figure 4. World Energy Consumption by fuel through 2018, based on 2019 BP Statistical Review of World Energy. Quantities are measured in energy equivalence. “Other Renew” includes a number of kinds of renewables, including wind, solar, geothermal, and sawdust burned to provide electricity. Biofuels such as ethanol are included in “Oil.”

Note that the flat periods are almost identical to the flat periods in the extraction of material resources in Figure 2. This is what we would expect, if it takes material resources to make goods and services, and the laws of physics require that energy consumption be used to enable the physical transformations required for these goods and services.

[5] The world economy seems to need an annual growth in world energy consumption of at least 2% per year, to stay away from recession.

There are really two parts to projecting how much energy consumption is needed:

  1. How much growth in energy consumption is required to keep up with growing population?
  2. How much growth in energy consumption is required to keep up with the other needs of a growing economy?

Regarding the first item, if the population growth rate continues at a rate similar to the recent past (or slightly lower), about 1% growth in energy consumption is needed to match population growth.

To estimate how much growth in energy supply is needed to keep up with the other needs of a growing economy, we can look at per capita historical relationships:

Figure 5. Three-year average growth rates of energy consumption and GDP. Energy consumption growth per capita uses amounts provided in BP 2019 Statistical Review of World Energy. World per capita GDP amounts are from the World Bank, using GDP on a 2010 US$ basis.

The average world per capita energy consumption growth rate in non-recessionary periods varies as follows:

  • All years: 1.5% per year
  • 1970 to present: 1.3% per year
  • 1983 to present: 1.0% per year

Let’s take 1.0% per year as the minimum growth in energy consumption per capita required to keep the economy functioning normally.

If we add this 1% to the 1% per year expected to support continued population growth, the total growth in energy consumption required to keep the economy growing normally is about 2% per year.

Actual reported GDP growth would be expected to be higher than 2%. This occurs because the red line (GDP) is higher than the blue line (energy consumption) on Figure 5. We might estimate the difference to be about 1%. Adding this 1% to the 2% above, total reported world GDP would be expected to be about 3% in a non-recessionary environment.

There are several reasons why reported GDP might be higher than energy consumption growth in Figure 5:

  • A shift to more of a service economy, using less energy in proportion to GDP growth
  • Efficiency gains, based on technological changes
  • Possible intentional overstatement of reported GDP amounts by some countries to help their countries qualify for loans or to otherwise enhance their status
  • Intentional or unintentional understatement of inflation rates by reporting countries

[6] In the years subsequent to 2011, growth in world energy consumption has fallen behind the 2% per year growth rate required to avoid recession.

Figure 7 shows the extent to which energy consumption growth has fallen behind a target growth rate of 2% since 2011.

Figure 6. Indicated amounts to provide 2% annual growth in energy consumption, as well as actual increases in world energy consumption since 2011. Deficit is calculated as Actual minus Required at 2%. Historical amounts from BP 2019 Statistical Review of World Energy.

[7] The growth rates of oil, coal and nuclear have all slowed to below 2% per year since 2011. While the consumption of natural gas, hydroelectric and other renewables is still growing faster than 2% per year, their surplus growth is less than the deficit of oil, coal and nuclear.

Oil, coal, and nuclear are the types of energy whose growth has lagged below 2% since 2011.

Figure 7. Oil, coal, and nuclear growth rates have lagged behind the target 2% growth rate. Amounts based on data from BP’s 2019 Statistical Review of World Energy.

The situations behind these lagging growth rates vary:

  • Oil. The slowdown in world oil consumption began in 2005, when the price of oil spiked to the equivalent of $70 per barrel (in 2018$). The relatively higher cost of oil compared with other fuels since 2005 has encouraged conservation and the switching to other fuels.
  • Coal. China, especially, has experienced lagging coal production since 2012. Production costs have risen because of depleted mines and more distant sources, but coal prices have not risen to match these higher costs. Worldwide, coal has pollution issues, encouraging a switch to other fuels.
  • Nuclear. Growth has been low or negative since the Fukushima accident in 2011.

Figure 8 shows the types of world energy consumption that have been growing more rapidly than 2% per year since 2011.

Figure 8. Natural gas, hydroelectric, and other renewables (including wind and solar) have been growing more rapidly than 2% since 2011. Amounts based on data from BP’s 2019 Statistical Review of World Energy.

While these types of energy produce some surplus relative to an overall 2% growth rate, their total quantity is not high enough to offset the significant deficit generated by oil, coal, and nuclear.

Also, it is not certain how long the high growth rates for natural gas, hydroelectric, and other renewables can persist. The growth in natural gas may slow because transport costs are high, and consumers are not willing/able to pay for the high delivered cost of natural gas, when distant sources are used. Hydroelectric encounters limits because most of the good sites for dams are already taken. Other renewables also encounter limits, partly because many of the best sites are already taken, and partly because batteries are needed for wind and solar, and there is a limit to how fast battery makers can expand production.

Putting the two groupings together, we obtain the same deficit found in Figure 6.

Figure 9. Comparison of extra energy over targeted 2% growth from natural gas, hydroelectric and other renewables with energy growth deficit from oil, coal and nuclear combined. Amounts based on data from BP’s 2019 Statistical Review of World Energy.

Based on the above discussion, it seems likely that energy consumption growth will tend to lag behind 2% per year for the foreseeable future.

[8] The economy needs to produce its own “demand” for energy products, in order to keep prices high enough for producers. When energy consumption growth is below 2% per year, the danger is that energy prices will fall below the level needed by energy producers.

Workers play a double role in the economy:

  • They earn wages, based on their jobs, and
  • They are the purchasers of goods and services.

In fact, low-wage workers (the workers that I sometimes call “non-elite workers”) are especially important, because of their large numbers and their role in buying many items that use significant amounts of energy. If these workers aren’t earning enough, they tend to cut back on their discretionary buying of homes, cars, air conditioners, and even meat. All of these require considerable energy in their production and in their use.

High-wage workers tend to spend their money differently. Most of them have already purchased as many homes and vehicles as they can use. They tend to spend their extra money differently–on services such as private education for their children, or on investments such as shares of stock.

An economy can be configured with “increased complexity” in order to save energy consumption and costs. Such increased complexity can be expected to include larger companies, more specialization and more globalization. Such increased complexity is especially likely if energy prices rise, increasing the benefit of substitution away from the energy products. Increased complexity is also likely if stimulus programs provide inexpensive funds that can be used to buy out other firms and for the purchase of new equipment to replace workers.

The catch is that increased complexity tends to reduce demand for energy products because the new way the economy is configured tends to increase wage disparity. An increasing share of workers are replaced by machines or find themselves needing to compete with workers in low-wage countries, lowering their wages. These lower wages tend to lower the demand of non-elite workers.

If there is no increase in complexity, then the wages of non-elite workers can stay high. The use of growing energy supplies can lead to the use of more and better machines to help non-elite workers, and the benefit of those machines can flow back to non-elite workers in the form of higher wages, reflecting “higher worker productivity.” With the benefit of higher wages, non-elite workers can buy the energy-consuming items that they prefer. Demand stays high for finished goods and services. Indirectly, it also stays high for commodities used in the process of making these finished goods and services. Thus, prices of energy products can be as high as needed, so as to encourage production.

In fact, if we look at average annual inflation-adjusted oil prices, we find that 2011 (the base year in Sections [6] and [7]) had the single highest average price for oil.1 This is what we would expect, if energy consumption growth had been adequate immediately preceding 2011.

Figure 10. Historical inflation-adjusted Brent-equivalent oil prices based on data from 2019 BP Statistical Review of World Energy.

If we think about the situation, it is not surprising that the peak in average annual oil prices took place in 2011, and the decline in oil prices has coincided with the growing net deficit shown in Figures 6 and 9. There was really a double loss of demand, as growth in energy use slowed (reducing direct demand for energy products) and as complexity increased (shifting more of the demand to high-wage earners and away from the non-elite workers).

What is even more surprising is the fact that the prices of fuels in general tend to follow a similar pattern (Figure 11). This strongly suggests that demand is an important part of price setting for energy products of all kinds. People cannot buy more goods and services (made and transported with energy products) than they can afford over the long term.

Figure 11. Comparison of changes in oil prices with changes in other energy prices, based on time series of historical energy prices shown in BP’s 2019 Statistical Review of World Energy. The prices in this chart are not inflation-adjusted.

If a person looks at all of these charts (deficits in Figures 6 and 9 and oil and energy prices in general from Figures 10 and 11) for the period 2011 onward, there is a very distinct pattern. There is at first a slow slide down, then a fast slide down, followed (at the end) by an uptick. This is what we should expect, if low energy growth is leading to low prices for energy products in general.

[9] There are two different ways that oil and other energy prices can damage the economy: (a) by rising too high for consumers or (b) by falling too low for producers to have funds for reinvestment, taxes and other needs. The danger at this point is from (b), energy prices falling too low for producers.

Many people believe that the only energy problem that an economy can have is prices that are too high for consumers. In fact, energy prices seemed to be very high in the lead-ups to the 1974-1975 recession, the 1980-1982 recession, and the 2008-2009 recession. Figure 5 shows that the worldwide growth in energy consumption was very high in the lead-up to all three of these recessions. In the two earlier time periods, the US, Europe, and the Soviet Union were all growing their economies, leading to high demand. Preceding the 2008-2009 Great Recession, China was growing its economy very rapidly at the same time the US was providing low interest rates for home purchases, some of them to subprime borrowers. Thus, demand was very high at that time.

The 1974-75 recession and the 1980-1982 recession were fixed by raising interest rates. The world economy was overheating with all of the increased leveraging of human energy with energy products. Higher short-term interest rates helped bring growth in energy prices (as well as food prices, which are very dependent on energy consumption) down to a more manageable level.

Figure 12. Three-month and ten-year interest rates through May 2019, in chart by Federal Reserve of St. Louis.

There was really a two-way interest rate fix related to the Great Recession of 2008-2009. First, when oil and other energy prices started to spike, the US Federal Reserve raised short term interest rates in the mid 2000s. This, by itself, was almost enough to cause recession. When recession started to set in, short-term interest rates were brought back down. Also, in late 2008, when oil prices were very low, the US began using Quantitative Easing to bring longer-term interest rates down, and the price of oil back up.

Figure 13. Monthly Brent oil prices with dates of US beginning and ending Quantitative Easing.

There is one recession that seems to have been the result of low oil prices, perhaps combined with other factors. That is the recession that was associated with the collapse of the central government of the Soviet Union in 1991.

[10] The recession that comes closest to the situation we seem to be heading into is the one that affected the world economy in 1991 and shortly thereafter.

If we look at Figures 2 and 5, we can see that the recession that occurred in 1991 had a moderately severe effect on the world economy. Looking back at what happened, this situation occurred when the central government of the Soviet Union collapsed after 10 years of low oil prices (1982-1991). With these low prices, the Soviet Union had not been earning enough to reinvest in new oil fields. Also, communism had proven to be a fairly inefficient method of operating the economy. The world’s self-organizing economy produced a situation in which the central government of the Soviet Union collapsed. The effect on resource consumption was very severe for the countries most involved with this collapse.

Figure 14. Total extraction of physical materials Eastern Europe, Caucasus and Central Asia, in chart by MaterialFlows.net. Amounts shown are based on the Global Material Flows Database of the UN International Resource Panel.

World oil prices have been falling too low, at least since 2012. The biggest decreases in prices have come since 2014. With energy prices already very low compared to what producers need, there is a need right now for some type of stimulus. With interest rates as low as they are today, it will be very difficult to lower interest rates much further.

Also, as we have seen, debt-related stimulus is not very effective at raising energy prices unless it actually raises energy consumption. What works much better is energy supply that is cheap and abundant enough that supply can be ramped up at a rate well in excess of 2% per year, to help support the growth of the economy. Suitable energy supply should be inexpensive enough to produce that it can be taxed heavily, in order to help support the rest of the economy.

Unfortunately, we cannot just walk away from economic growth because we have an economy that needs to continue to expand. One part of this need is related to the world’s population, which continues to grow. Another part of this need relates to the large amount of debt that needs to be repaid with interest. We know from recent history (as well as common sense) that when economic growth slows too much, repayment of debt with interest becomes a problem, especially for the most vulnerable borrowers. Economic growth is also needed if businesses are to receive the benefit of economies of scale. Ultimately, an expanding economy can be expected to benefit the price of a company’s stock.

Observations and Conclusions

Perhaps the best way of summing up how my model of the world economy differs from other ones is to compare it to other popular models.

The Peak Oil model says that our energy problem will be an oil supply problem. Some people believe that oil demand will rise endlessly, allowing prices to rise in a pattern following the ever-rising cost of extraction. In the view of Peak Oilers, a particular point of interest is the date when the supply of oil “peaks” and starts to decline. In the view of many, the price of oil will start to skyrocket at that point because of inadequate supply.

To their credit, Peak Oilers did understand that there was an energy bottleneck ahead, but they didn’t understand how it would work. While oil supply is an important issue, and in fact, the first issue that starts affecting the economy, total energy supply is an even more important issue. The turning point that is important is when energy consumption stops growing rapidly enough–that is, greater than the 2% per year needed to support adequate economic growth.

The growth in oil consumption first fell below the 2% level in 2005, which is the year that some observers have claimed that “conventional” (that is, free flowing, low-cost) oil production peaked. If we look at all types of energy consumption combined, growth fell below the critical 2% level in 2012. Both of these issues have made the world economy more vulnerable to recession. We experienced a recession based on prices that were too high for consumers in 2008-2009. It appears that the next bottleneck may be caused by energy prices that are too low for producers.

Recessions that are based on prices that are too low for the producer are the more severe type. For one thing, such recessions cannot be fixed by a simple interest rate fix. For another, the timing is unpredictable because a problem with low prices for the producer can linger for quite a few years before it actually leads to a major collapse. In fact, individual countries affected by low energy prices, such as Venezuela, can collapse before the overall system collapses.

While the Peak Oil model got some things right and some things wrong, the models used by most conventional economists, including those included in the various IPCC reports, are far more deficient. They assume that energy resources that seem to be in the ground can actually be extracted. They see no limitations caused by prices that are too high for consumers or too low for producers. They do not realize that affordable energy prices can actually fall over time, as the economy weakens.

Conventional economists assume that it is possible for politicians to direct the economy along lines that they prefer, even if doing so contradicts the laws of physics. In particular, they assume that the economy can be made to operate with much less energy consumption than is used today. They assume that we collectively can decide to move away from coal consumption, without having another fuel available that can adequately replace coal in quantity and uses.

History shows that the collapse of economies is very common. Collectively, we have closed our eyes to this possibility ever happening to the world economy in the modern era. If the issue with collapsing demand causing ever-lower energy prices is as severe as my analysis indicates, perhaps we should be examining this scenario more closely.


[1] There was a higher spike in oil prices in 2008, but averaged over the whole year, the 2008 price was lower than the continued high prices of 2011.

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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.

880 thoughts on “Why stimulus can’t fix our energy problems

  1. Eric and Peter are two very smart guys BUT it is amazing how they are completely clueless about energy and how it is the reason behind most of the stagnation and decline they are discussing. They make some great points about growth stalling and ponzi schemes everywhere, they just can’t connect the dots.

    • I posted that video link previously for a slightly different purpose.
      These guys are in the know what’s going on in the digital industries – they confirmed the idea of several doom theorists-commentators that ‘the western IC hub’ is no longer importing !enough! brainpower from the rest of the globe. Mind you, this was up to recently one of the great fundamental pillars: print money, subjugate others to artificial one way rule book, import brains on the cheap, ..

      That’s fitting with the recent Huawei case, where TPTB freaked out from realizing they are evidently loosing several years on the competition in this very field, which branches out into security, mil-defense etc..

    • This is a good article by Robert Rapier, whom I know well from my Oil Drum days working with him. He points out that the estimates of oil extraction in the Permian Basin (up through August 2019) are showing progressively lower year over year growth. This is the pattern we would expect, if oil production is reaching its peak, essentially because of chronic low oil prices.

      I would expect that if oil prices were $150 or $300 per barrel, Permian Oil basin production would be sailing along for another few years. Venezuela would be doing well financially, and would be producing a lot of its very heavy oil. The oil sands in Canada would be too. Oil companies would be pursuing a lot of other heavy oil opportunities around the world. They might also be looking at shale opportunities. It all depends on prices being high enough to support continued drilling.

  2. “Central Banks, from the ECB to the Federal Reserve, are terrified of an economic recession or downturn… Given that global debt is 320% of global GDP, a deleveraging cycle will be too large for Central Banks to contain.

    “The deleveraging cycle WILL occur, all that Central Banks can do is hope to extend the current cycle long enough that “maybe” economic growth will catch up with the problem and lower the risk.

    “The irony is that it is the Central Banks on actions (lowering interest rates to zero and flooding the system with liquidity) which has inflated the debt bubble…

    “Never before in human history have we seen so much debt. Government debt, corporate debt, shadow-banking debt, and consumer debt are all at record levels. Not just in the U.S., but all over the world.

    “If you are thinking this is a “Goldilocks economy,” “there is no recession in sight,” “Central Banks have this under control,” and that “I am just being bearish,” you would be right.

    “But that is also what everyone thought in 2007.”


  3. Nice Norwegians
    I am curious about the evolution of Norway from a ‘not very nice’ country to an ‘extremely nice’ country. For example, I read a history of the Norwegian painter Nicolai Astrup. He lived from 1880 to 1928, I believe. He was the son of a Lutheran minister, which made him a member of the privileged class. But he chose to marry a peasant girl and take up farming (with painting on the side). In the farming village where they lived, the people were scandalized. It wasn’t proper for the different strata of society to intermarry. Astrup did many ‘good deeds’ trying to earn the tolerance of the local people.

    The Norwegian actress Liv Ullman had a child by the Swedish film director Ingmar Bergman in the 1950s. She reported that she had to search diligently for a Lutheran pastor in Norway willing to baptize her child.

    I was in the Scandinavian Lodge in Colorado cross-country skiing in the 1970s. They had a lot of books. I picked up a book about a little girl growing up in Norway, painted in idyllic scenes of country life. I was astounded to find it full of admiring descriptions of Germany, and the ‘order out of chaos’ which Hitler had brought…getting the working classes firmly under the control of the State.

    This is admittedly not a scholarly representation of Norwegians. But it hints that the society has evolved over the last 40 years or so. I am also reminded that in Belgium, the crime rate had sunk so low early in the 20th century that there was some consideration of eliminating the police.

    I wonder if niceness is catching, but violence can also become an infectious disease. We know that flocks of birds take their cues from the neighboring bird, and an infection model has recently been reported in the scientific journals which explains how melt pools form in the Arctic.

    Don Stewart

    • I think that the situation has to do with the ability to win wars with neighbors.

      In early days, sea boats could reach neighbors that did not have big armies that would attack back. Thus, sea boats could be successful. A culture that would provide aggressive and daring workers for these boats was, at least to some extent, needed.

      As the world became more integrated by commerce, it became apparent that Norway was at a disadvantage. With its cold climate, it had very much difficulty producing enough food for its people (other than fish harvested from the sea), especially as population exploded around 1900 due to falling death rates with improved sanitation etc, and also in earlier periods. When plagues came to Norway, they tended to cause larger percentage die-offs than elsewhere. I remember reading that the highest proportions of population from Norway and Ireland emigrated to the US, compared to other European countries, because of the difficulties these countries had had.

      In recent centuries, it has been apparent that Norway could never win a war against bigger, better armed countries. It needed to remain neutral and keep a low profile. Provoking neighbors was to be avoided at all costs. I expect that this is part of the culture of “get along with your neighbors, if at all possible.” I suppose the option of emigrating to solve population problems helped as well. If everyone had had to stay in place, there would have been a lot of infighting for scarce resources.

      I know my Grandfather from Norway was one of about 12 children who lived to maturity. The family owned a heavily indebted 7-acre farm, up in the mountains near Voss. It became clear that the farm could not possibly support such a large number of people. My grandfather left in the very early 1900s for the US. With the population explosion made possible by better sanitation/understanding the role of germs, many farm families in Norway had the same problem.

      • No time for a lesson on norwegian history, so just a quick remark. «As the world became more integrated by commerce, it became apparent that Norway was at a disadvantage»
        No, as deforestation became a problem both in England and on the continent Norway could ship lumber to countries in desperate need of woodmaterial of different sorts. The centuries before 1814, when Norway was the minor partner in a union with Denmark, was actually a period of rapid economic growth. Not just timber, but also iron, was exported. In this period Norwegian got one of the biggest commercial fleet in Europe.

    • “China’s lottery sales fell for a fifth straight month in June, slumping 40.7 percent year on year, official data showed. Lottery sales totaled 34.77 billion yuan (about 5.05 billion U.S. dollars) last month, down from 35.52 billion yuan in May, according to a statement from the Ministry of Finance.”


    • The Forbes article makes a number of good points. One of the points he talks about is about pursuing a lot of projects that are not economically viable, such as Belt and Road projects that local politicians want, but which will never pay back economically. There is also much Chinese internal investment of that type. (We have of course noted this issue previously.) The author puts this problem in “economist-speak”:

      They generate incomes and jobs while they last (multiplier effect), but nothing beyond that—no accelerator effect, as economists would say.

      He also gives some history that I was not aware of:

      The former Soviet Union tried that in the 1950s, and it didn’t work. Nigeria tried that in the 1960s; Japan tried that in the 1990s, and it didn’t work in either of those cases. That’s why bubbles burst – and leave behind tons of debt.

      We have been seeing a lot of this effect recently, but I wan’t as aware of it happening back in the 1950s and 1960s as well.

  4. “Lack of growth and jobs, and a poor level of consumer confidence, lead to tightening up of family purse strings; and a spiralling crisis of lack of demand, a production slowdown, and more people are out of work.

    “With the worsening international scenario and the inability of the [Indian] government to crank up the domestic economy, we seem to be observing the beginning of what could be a long, recessionary cycle.”


    • “The real estate market in India’s financial hub of Mumbai has been severely hit by the liquidity crisis, making it even more vulnerable than the National Capital Region (NCR), the worst hit in the slowdown so far.

      “Mumbai, India’s most valuable real estate market, is grappling with a lack of lenders and is showing deeper signs of distress, reflected in the schemes and discounts offered by developers to push sales.”


        • There are multiple different versions of GDP/GNP that are published. The PPP weighted version gives China and India much more GDP/GNP than does the dollar weighted one. In fact, the world GDP numbers a person usually sees published are PPP weighted.

          According to a file I just downloaded from the World Bank Website, the PPP GDP ranking of countries is as follows:

          Gross domestic product 2018, PPP `

          (millions of
          Ranking Economy international dollars)

          CHN 1 China 25,361,744
          USA 2 United States 20,494,100
          IND 3 India 10,498,468
          JPN 4 Japan 5,484,951
          DEU 5 Germany 4,505,236
          RUS 6 Russian Federation 3,986,064
          IDN 7 Indonesia 3,494,762
          BRA 8 Brazil 3,365,757
          GBR 9 United Kingdom 3,074,432
          FRA 10 France 3,073,179

          I hope it will be possible to read this chart. It was copied in from Excel.

          On this ranking, China is number 1, India is number 3. India’s economy is about half the size of the US economy. It is this weighting system that allows statements about the high growth of the world economy that a person often sees quoted in papers. Very few talk about US$ weighted world GDP growth, as far as I know, except analysts like me.

  5. “According to the Federal Reserve, the number of $100 bills in circulation has roughly doubled since the global financial crisis, despite the rise of cashless options, like Venmo and PayPal, and the notion that bitcoin BTCUSD, +0.46% and other cryptocurrencies will one day become more widespread.
    The driver of the demand doesn’t come from within U.S. borders, either. The IMF pointed out that most — an estimated 80% — are held abroad. That’s compared to more than 60% of all U.S. bills being held overseas, up from 30% in 1980.
    One reason for the sharp surge in demand could be geopolitical instability, the IMF said, as a thirst for cash from other countries tends to increase during unsettled times. By that measure, the U.S. dollar is seen as a safe haven in troubled areas like Venezuela, the Middle East and elsewhere”
    The world can’t get enough $100 bills
    By Shawn Langlois
    …Underground demand for paper currency has been surely rising in part because interest rates and inflation are exceptionally low,” he was quoted as saying in the IMF report. “The dollar is now the only global currency; the euro has stalled, and the renminbi is decades away from challenging.”

    Holler for the Dollar!!

    • Well weed is legal now in a couple states but not legal federally. That means banks will seize any account linked to weed production or sales. Probably much to the banks chagrine. That means the whole thing millions and millions of dollars is done in cash. Including the taxes payed to government on all levels State, County, and city. Hey feds you dont want your cut? The town of Pueblo alone a mid size town in colorado made just under a mil off it last year. With this massive grey industry running off cash demand for 100s is not eye raising.

      • Yes, the Drug Lords OUTSIDE the country…the article states it is estimated @80% of currency is held OUTSIDE the US borders up from 30% held in 1980!!!!
        The big demand is foreigners….

        • I suppose your right the 6 billion of sales in Colorado alone is less than one percent of the numbers on that chart if I read “number of notes correctly”.


          Sales dont reflect the massive investment thats been made constructing production and sales facilities . I drove past a retail outlet on I70 the other day and it must of had a hundred cars parked in its parking lot. I know two of the facilities in my area were built by europeans looking to enter the industry and they dropped 2.5 million on each. You can barely find a contractor to do work .. .
          They are all busy working for very lucrative rates building weed production facilities.
          Thats all cash too.

          I make the 12 billion 100 dollar notes (total not increase)on that chart to be slightly over 8000 miles high stacked on top of each other. Thats a lot of work to drop out of a helicopter!

    • As long as we’re going to have a reality TV star as world leader, we could do a lot worse than Honey Boo-Boo.

  6. Plenty of $$$ in Cyberspace….
    India’s newest billionaire is a former classroom teacher who developed an education app that’s grown to a valuation of almost $6 billion in about seven years.
    Byju Raveendran joined the rarefied club after his Think & Learn Pvt scored $150 million in funding earlier this month. That deal conferred a value of $5.7 billion on the company in which the founder owns more than 21%, people familiar with the matter said. Its closing coincided with the announcement that the company’s Byju’s app — named after the founder — will team up with Walt Disney Co. and take its service to American shores by early 2020.

    Wonder what will happen when the plug is pulled?
    PS…Looks like more and more schooling will be diverted to the computer screen from the classroom! They’ll, no doubt, put a positive spin on it….no need for children to travel to and from school, saves $$$ on teachers salaries, constructing school buildings, safer at home without the threat of shooting. Ect
    Yes, the future looks bright! Sarcasm

    • I’m old enough to remember when the same things were said about the educational uses of television.

      • And it all came true!
        Read the book Four Arguments for the Elimination of Television Paperback – March 1, 1978
        by Jerry Mander (Author)
        Quoting from page 152;
        “While purporting to be a mass technology available to everyone, because everyone can experience it, television is little more than the tool of these companies. If four out of five dollars of television income derive from them, then obviously, without currying their favor the networks would cease to exist.
        The corollary is also true. Without such a single, monolithic instrument as television, the effective power and control of these huge corporations could not be harnessed as it presently is. Monolithic economic enterprise needs monolithic media to purvey its philosophy and to influence rapid change in consumption patterns. Without an instrument like television, capable of reaching everyone in the country at the same time and narrowing human needs to match the re-designed environment, the corporations themselves could not exist.
        The spread of television unified a whole people within a system of conceptions and living patterns that made possible the expansion of huge economic enterprise.”
        That, in my view, pretty much nails it….from Amazon comment

        • Some of us ended television watching years ago. My husband and I haven’t had a television since 2003. I don’t think we watched it much before then, except for perhaps a few baseball games.

    • Coursera is pretty good, personal interaction is good, but what are most course? Generally in a given area one or two are very good, remainder are average, we see this distribution all over the place. MIT has wonderful courses on the internet; person to person has the advantage of discipline of a set class time.

      Dennis L.

  7. Too funny…..boy, these people can’t STOP! Why even bother?

    There’s so much on the line in the next 18 months or so,” said Sue Reid, vice-president of climate and energy at Ceres, a U.S. non-profit group that works to steer companies and investors onto a more sustainable path.
    “This is a crucial period of time both for public officials and the private sector to really reverse the curve on emissions,” Reid told Reuters.
    In October, the U.N.-backed Intergovernmental Panel on Climate Change (IPCC) warned emissions must start falling next year at the latest to stand a chance of achieving the deal’s goal of holding the global temperature rise to 1.5 degrees Celsius.
    With emissions currently on track to push temperatures more than three degrees higher, U.N. Secretary-General Antonio Guterres is working to wrest bigger commitments from governments ahead of a summit in New York in September

    Sure…bigger commitments….Pleaase….stop pretending will ya!

  8. “The U.S. isn’t an island. When the U.S. tightens policy—I learned this early on in my own tenure—we saw that had repercussions in many parts of the world, it appeared to be weakening financial markets and the prospects for growth globally.” Janet Yellen

    You have the dollar
    We have the Eurodollar
    Your banks can print dollars (fractional reserve banking)
    Our banks can print Eurodollars (fractional reserve banking)
    You have a central bank
    We don’t

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