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.

Note:

[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.

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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880 Responses to Why stimulus can’t fix our energy problems

    • Harry McGibbs says:

      Ironic that he uses the word “re-energising”, when we are now an energy importer, and a power in irretrievable decline.

      You just know there is cause for alarm when leaders who spout this kind of delusional hyperbole emerge.

      • Xabier says:

        Quite: the Victorians had the serene assurance of British commercial and naval greatness and didn’t need to boast or make such absurd promises.

        Maybe the plan is to medicate everyone in the UK heavily, so they don’t perceive the decline? Like a retirement home. Boris meets Huxley……

        • Harry McGibbs says:

          That doesn’t actually sound too unpalatable, Xavier – a generous sprinkling of Soma in the water-supply to ease the discomfort. Have you considered a career in policy-making?

      • Good point about using the term re-energizing. Without sufficient energy, any supposed world “power” (another energy term) is no longer a world power.

      • Xabier says:

        It was once suggested to Churchill, in about 1944, that he had ‘given the British people energy’ to fight the war.

        ‘No, not at all: but I did help them to concentrate theirs.’

        Let’s all concentrate and the lights will stay on.

  1. Denial says:

    do you see a collapse in the system where this time the rich are scapegoated to and rounded up?

    • If we are having a collapse of a worldwide system, there might be different impacts in different parts of the world. In some places, I suppose it might be that the rich are scapegoated and rounded up.

      The major effect of the lead-up to collapse is that there is a lot more conflict in general. We are seeing this now among political parties. Historically, in collapses, the people have often overthrown government leaders. At this point, voting government leaders out of office is the way this is done. But governments could collapse completely, the way the central government of the Soviet Union did in 1991.

      Each time is different, and perhaps each place around the world will be different. We don’t know exactly how this will play out.

      • Xabier says:

        Cultural factors as well as economic will likely determine the response to mass poverty, loss of services, etc : but with the Neo-Liberal and Left (the two go hand in hand in their hatred of tradition) destruction of national cultures in the West, who can say with confidence how things will play out?

        In Britain, a response perceived to be ‘fair’ would normally have been approved without any violence, just a lot of grumbling; but now that there are so many people from more volatile and excitable cultures in the country, and general behaviour has been eroded by social media narcissism, they may well resort to rioting. Lesson: steer clear of big cities.

        Spain would probably see a return of something like Francoism, a para-military crackdown
        – it was seen in part during the Catalan crisis. Lesson: learn to wave the flag and love it.

        Generally, suspension of elections and governments of National Emergency can be anticipated, and very greatly increased criminal activity.

    • Nope, perhaps partially, as this would be unnecessary expense of energy. And very likely a small faction out of them will blend into the new reality seamlessly anyway. While most of the unprepared rich will be simply unplugged from their legacy support system naturally by the cascading situation.

      This will be a typical historical rehash of fallen empires, revolutions, balkanizations etc..
      Simply, the ‘lower ranks’ with some working knowledge of particular parts of the system will take over the manageable-salvageable scraps, the colonels, or even way down like platoon leaders, police/rescue captains, local latifundists etc.

      So as usual it is a return to meritocracy, and common people will have to be able deliver real deal cooperation in the new situation for the new power structure, unless they end up on the extreme wayside.

  2. It's different this time around....NO says:

    Ahhh, sounds all too familiar ….
    A Relay, sensor, shoulda, woulda. coulda….

    Con Edison, New York’s energy company, released a statement Monday about its investigation into the cause of the Manhattan power outage, which affected at least 70,000 people in on the island’s west side for about five hours along a 40-block stretch earlier this month.
    “Our engineers have determined the root cause and taken steps to prevent a recurrence,” Con Edison said. “As part of our investigation, we reviewed 15 years of operating data and took equipment out of service at our 65th Street substation to conduct diagnostic testing, which allowed us to simulate the event. We identified a flawed connection between some of the sensors and protective relays at the substation. We have corrected that condition.”
    A preliminary review of the blackout showed that the relay system at a West 65th Street substation should have kept the problem from spreading
    FOX NEWS
    The Fast Eddie Challenge is one circuit short away….sleep tight everyone!

  3. Harry McGibbs says:

    “The pound headed for its worst run of losses in almost three years after U.K. Prime Minister Boris Johnson raised the stakes over a no-deal Brexit, issuing an ultimatum to the European Union that he won’t start divorce talks unless the withdrawal agreement is re-opened [which the EU has already said is a non-starter].”

    https://www.bloomberg.com/news/articles/2019-07-30/pound-heads-for-worst-slump-since-2016-as-johnson-sets-ultimatum

    • Harry McGibbs says:

      “German consumer morale worsened for the third month in a row heading into August as a global economic downturn, trade disputes and Brexit uncertainty fuel worker fears of losing their jobs and their income, a survey showed on Tuesday… the continued drop in consumer confidence signals that a slump in Germany’s export-dependent manufacturing is now creeping into other sectors of the economy.”

      https://www.euronews.com/2019/07/30/german-consumer-morale-drops-as-recession-fears-spread-gfk-says

      • Harry McGibbs says:

        “Deutsche Bank, once a superstar in Europe, is now a disaster… Deutsche Bank’s struggles have also been amplified by something the 149-year-old lender never imagined, mostly because it had never happened before in modern history: negative interest rates.”

        https://edition.cnn.com/2019/07/29/business/deutsche-bank-ecb-negative-rates/index.html

        • Harry McGibbs says:

          “When ArcelorMittal temporarily laid off around 1,400 Italian workers at its Taranto plant last month, it was just the latest sign that the eurozone’s economic weakness was feeding into the labour market in the bloc’s third-largest economy.”

          https://www.ft.com/content/3ffa9a7c-a717-11e9-984c-fac8325aaa04

          • Employment seems to be hit relatively late in the cycle in the economic cycle. First profit of companies fall. Then companies start laying off workers. In the EU, it sounds like they need to have very good cause before they can lay off workers.

          • Xabier says:

            And that’s a dirt poor part of Italy: the workers are probably paid peanuts compared to Northern Europe, just as in the VW plants in Spain.

            Nonetheless, they would have been much sought after jobs, poor devils.

            But repeat after me: The EU is Peace and Prosperity, Citizens!

        • Negative interest rates seem to be tied to negative productivity of new investments. When this happens, how can an economy possibly move forward?

          • Jay says:

            Gail, can you explain this further? Thanks.

            • Sorry, right now I should be working on a new post.

            • ‘investment’ can only show a real return if that investment is in an enterprise that converts energy into products—a simple example is investing in a steel processing plant that sells its steel to turn into cars,

              the cars are then sold (consumed) by people who themselves are earning enough money (ie converting energy) so that they have enough surplus to keep buying cars.

              If people stop buying cars, and you can’t sell steel anywhere else, your investment crashes.

              If on the other hand, you invest in a fracking well business, your investment never shows a profit because the price of oil isn’t high enough. But you are convinced it will.

              So investments keep pouring in because oil is seen as a valuable speculative commodity which must one day return a profit.

              One imagines those investors have been lucky enough to make money in one area—and look around for something else to put their money in, thinking they have the Midas touch.

              Sound investments are getting scarcer, so oil seems the best bet.
              People will tolerate negative returns until their money runs out.

    • A falling pound of course makes the energy products that the UK imports more expensive.

      • Tim Groves says:

        But it makes all those wonderful British products cheaper abroad.

        Hang on… They don’t make ’em in Britain any more. Even my Twining’s Earl Grey Tea is grown in China and blended and packed in Poland, my Cadbury’s Dairy Milk Chocolate comes from Australia and my Fisherman’s Friend Extra Strong Mints are packed in Malaysia.

        As for the Dyson, Britain’s answer to the Hoover, the company’s moved its HQ to Singapore.

        This country that we love and we cherish
        It once was the envy of the world…..

      • However, there is (will be) a window of falling GBP vs other currencies in which the vendors inside the UK still hesitate to correct prices up for warehoused merchandise in fear of loosing market share to other domestic competitors (or eventually no buyers at all). It’s always a relatively brief window but good one to spot, have pulse on the events, and shop for these specific big items, which don’t sell very much daily anyway.

  4. Harry McGibbs says:

    “U.S. companies are on pace to break another record for share repurchases in 2019, using a combination of cash and debt to push the total to close to $1 trillion. For the first time since the financial crisis, companies have given back more to shareholders than they are making in cash net of capital expenditures and interest payments, or free cash flow, according to Goldman Sachs calculations.”

    https://www.cnbc.com/2019/07/29/buybacks-companies-increasingly-using-debt-to-repurchase-stocks.html

    • Harry McGibbs says:

      “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… 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.”

      https://www.ft.com/content/a8de3894-afa7-11e9-8030-530adfa879c2

    • Companies are finding that investing in their own operations is not worthwhile. Instead, companies simply reduce the number of shares outstanding, and increase promises to bondholders.

      Neither stockholders nor bondholders will get their investments back if investment in current operations is not worthwhile. But pension funds and others have to find something to put their funds in, so they never think through the obvious.

  5. Tim Groves says:

    Some of you may find this 10-minute conversation interesting.

    James White from NorthwestLibertyNews.com and David DuByne from the ADAPT 2030 channel on YT discuss changes in society as we head deeper into the intensifying Eddy Grand Solar Minimum.

    For several years, David has been prophesying a grand solar minimum that will slash crop production in North America, Russia, and inhabited lands everywhere that normally experience cold winters, and he’s very excited that the sort of bad weather he was warning of has manifested two years ahead of his schedule. He is now talking about social unrest by 2023 and of the EU military occupying North Africa to take control of the old Roman grain-growing areas.

    “Somebody knew these cycles were coming that’s gonna devastate our society decades, decades in advance… They knew this thing was coming since the seventies.”

    “There’s seven billion people out there competing for the same machinery, repair parts, long-term food storage, seeds, medicines, and whatever else there might be. Governments are not warning because they don’t want you competing for what they’re buying at the moment. … So they’re gonna run this thing at 2,000 miles per hour straight into a brick wall.”

    • HDUK says:

      NASA did suggest the ‘turbulence’ could commence around 2019/2020
      https://science.nasa.gov/science-news/news-articles/solar-minimum-is-coming
      It appears to affect weather due to less ozone being formed and the formation of clouds. Timothy Garrett has carried out some interesting work on clouds which appear to warm the planet far more than CO2.
      https://visibleearth.nasa.gov/view.php?id=7122 We have only been recording these sun cycles since 1755 so we don’t really have a record of what happened before this time, the whole climate situation is very complex and CO2 seems to me to be an easy and convenient scape goat. Dr Christine Jones of amazing carbon suggests we should be making the most of this CO2 to restore the natural carbon cycle that we have destroyed using fossil fuels to fell trees, plough soil, create pesticides and inorganic nitrogen etc.
      https://www.amazingcarbon.com/
      The ejection of streams of solar particles from coronal holes due to solar minimum, could be particularly problematic to electricity supplies, satellites and complex technology etc are we already experiencing this around the world? We have built such complex systems building and advancing technology over 1000’s of years, which in turn allowed us to access the vast stores of energy mostly due to a favourable climate since the younger and older dryas. The locust species that we have become could be thrown into reverse in a relatively short space of time. Interesting times indeed, lets hope John Michael Greer is right and it plays out over a couple of hundred years.

      • Thanks guys, yes this combo scenario of low temperatures + unreliable electronics (and possible long distance HV lines) due to ‘solar minimum’ forcing is certainly intriguing one.. Although spelled in simpleton terms I was never friend of all things hot.

        Advantages:
        – braking cycle of many parasites, viruses and other bugs
        – reemergence of maritime and river routes with deep ice enough for regular winter transport
        – water table / aquifers replenishment – and following nourishment of food production
        (albeit in way shorter season say bellow ~75days in Europe)
        – the end of silly fashion trends like recent craziness: let’s dress everybody (inc. fat/short/old) into extreme slim style

        = all in all too much good stuff to happen to us folks, lolz

  6. Xabier says:

    Freezing tonight, or frying tonight, what’s it to be?

    Oh, just Carry On……

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