Our Energy and Debt Predicament in 2019

Many people are concerned that we have an oil problem. Or they are concerned about recession and the need to lower interest rates.

As I see the situation, we have a problem of a networked economy that is not functioning well. A big part of this problem is energy-related. Strange as it may seem, energy prices (including oil prices) are too low for producers. If debt levels were growing more rapidly, this low-price problem would go away.

The “standard way” of encouraging more debt-based purchases is by lowering interest rates. But we are running out of room to do this now. We also seem to be running out of economic investments to make with debt. If expected returns on investment were greater, interest rates would be higher.

Without economic investments, demand for commodities of all kinds, including energy products, tends to stay too low. This is the problem we have today. Our debt problem and our energy problem are really different aspects of a networked economy that is no longer generating enough total return. History suggests that these periods tend to end badly.

In the following sections, I will explain some of the issues involved.

[1] Our problem is not just that oil prices are too low. Prices are too low for practically every type of energy producer, and in many parts of the globe.

Oil: OPEC oil producers have cut back production because they view oil prices as too low. OPEC reports a cutback in production of 2.7 million barrels per day between November 2018 and July 2019 (from 32.3 million bpd to 29.6 million bpd).

In the US, there has been an increase in bankruptcies of oil producers during 2019, relative to 2018. There has also been a reduction in the number of oil drilling rigs of 17% since the week of November 16, 2018, according to reports by Baker Hughes. These are signs of producer distress.

Natural gas: While recent US natural gas prices have bounced up off their recent lows, as recently as August 8, 2019, we were reading:

U.S. gas futures this week collapsed to a three-year low, while spot prices were on track to post their weakest summer in over 20 years. In other markets, such lackluster pricing would cause investment to retrench and supply to contract.

But gas production is at a record high and expected to keep growing. Demand is rising as power generators shut coal plants and burn more gas for electricity, and as rapidly expanding liquefied natural gas (LNG) terminals turn more of the fuel into super-cooled liquid for export.

Analysts believe the natural gas market is not trading on demand fundamentals because supply growth continues to far outpace rising consumption. Energy firms are pulling record amounts of oil from shale formations and with that oil comes associated gas that needs either to be shipped or burned off.

When we look worldwide, we see that the Wall Street Journal is reporting, “U.S. Glut in Natural Gas Supplies Goes Global.” A chart from that article shows falling natural gas prices in Europe and Asia, almost to the level of US natural gas prices.

Coal: The US Energy Information Administration writes, “More than half of US coal mines operating in 2008 have since closed.” USA Today writes, “Is President Trump losing his fight to save coal? Third major company since May files for bankruptcy.”

China has also been closing coal mines in response to low prices. Its coal production ramped up quickly after it joined the World Trade Organization in 2001, but since the 2012 to 2013 period, production has been close to level. An academic paper talks about a “de-capacity program” undertaken in China in 2016 in response to plunging coal prices and overall financial loss of coal enterprises.

Figure 1. China energy production by fuel, based on 2019 BP Statistical Review of World Energy data. “Other Ren” stands for “Renewables other than hydroelectric.” This category includes wind, solar, and other miscellaneous types, such as sawdust burned for electricity.

Uranium: A recent article says, “Plummeting global uranium prices hit Namibia hard.” Another article talks about the huge amount of capacity that has been taken off-line because of continued low uranium prices. The article estimates that 25% to 35% of global uranium production had already been taken off-line by the time the article was published (May 20, 2019).

Ethanol: According to the Wall Street Journal, the ethanol industry has been losing money since at least 2015, and is now closing ethanol plants in three states. The trade war has exacerbated its problems, but clearly its problems began before the trade war.

[2] The general trend in oil prices has been down since 2008. In fact, a similar trend applies for many other fuels.

Figure 2 shows that oil prices since 2008 have been trending downward.

Figure 2. Inflation adjusted weekly average Brent Oil price, based on EIA oil spot prices and US CPI-urban inflation.

Figure 3 shows that other energy prices have been following a similar price trend to that of oil. This situation happens because energy products are primarily used in finished goods and services of many kinds, such as cars, homes, vacation travel, and air conditioning. If demand for finished goods and services is high, prices for all commodities can be expected to be high; if demand for finished goods and services is low, prices for all commodities can be expected to be low. Thus, it shouldn’t be too shocking that the problem of prices that are too low for energy producers is very widespread.

Figure 3. 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. They are annual averages, so smooth out quite a few smaller bumps.

[3] The situation of prices being too low for many types of energy producers simultaneously is precisely the problem I found back in December 2008 when I wrote the article Impact of the Credit Crisis on the Energy Industry – Where Are We Now? 

The article mentioned was written in December 2008. If we look back at Figure 2, this was a time when oil prices were very low. I had first noticed a cutback in credit of various kinds (including credit card debt and mortgage debt) in the middle of 2008, about the time oil prices crashed. Later in the year, additional financial problems emerged, including the collapse of Lehman Brothers. Banks became less willing to offer credit to buyers who were deemed insufficiently creditworthy.

In my December 2008 article, I wrote about suppliers in various supply chains not being able to get credit. Without credit, supply chains could not operate. Businesses depending on supply chains were forced to cut back on their purchases. In fact, some suppliers went bankrupt. Workers were laid off in this process; these layoffs added to the lack of buyers for finished goods and services. Energy prices of many types crashed simultaneously because of the lack of demand for commodities used to make finished products of many kinds.

The fix for the problem back in late 2008 was for the US to begin Quantitative Easing. Quantitative Easing lowered longer-term interest rates and allowed more credit to get back to supply chains. By 2011, oil prices had risen to a level that was more tolerable for producers. These higher prices slowly slipped away, especially disappearing when the US discontinued its Quantitative Easing program in 2014.

If a person looks at the late 2008 situation, it is clear that a lack of debt availability indirectly led to low commodity prices. Prices dropped almost vertically when the debt bubble popped. This time, the situation is a little different. We arrived at low prices through the long diagonal black dotted line on Figure 2; this time other factors besides an obvious lack of debt have been involved.

One issue that seems to be involved this time is a shift in relativities between the dollar and other currencies, making energy products more expensive for those outside the US.

A second contributing issue this time is growing wage disparities, as goods are increasingly manufactured in low-wage countries. Low-wage workers (both in developing countries and in advanced economies trying to compete with developing countries) are less able to buy finished goods and services. This contributes to the lack of demand for finished goods and services using commodities of all kinds, including energy products.

[4] In the right circumstances, a rapidly growing supply of cheap energy products can help the world economy grow.

If we look back, there was a period of rapid growth in the world’s energy consumption between World War II and 1980. This was a period of rapid growth in the world economy.

Figure 4. Average growth in energy consumption for 10 year periods, based Vaclav Smil estimates from Energy Transitions: History, Requirements and Prospects (Appendix) together with BP Statistical Data for 1965 and subsequent.

In fact, both population and energy consumption per capita were growing. This growing energy consumption per capita allowed living standards to grow as well (Figure 5).

Figure 5. Energy growth amounts shown in Figure 4, divided between amount that supported population growth (based on 2019 world population estimates and earlier estimates by Angus Maddison) and all other, which I have called “living standards.”

Most people would agree that a major increase in living standards took place between World War II and 1980. New buildings were constructed to replace those destroyed or damaged during World War II. Many people were able to buy cars for the first time. Interstate highway systems were built. Electric transmission lines were built, and oil and gas pipelines were laid. In rural areas, homes were often electrified for the first time. With the aid of energy saving appliances and birth control pills, many women joined the workforce. The US, Europe, Japan, and the Soviet Union all saw their economies grow.

[5] It is striking that the period of rapid energy consumption growth between World War II and 1980 corresponds closely to the long-term rise in US interest rates between the 1940s and 1980 (Figure 6).

Figure 6. Three-month and ten-year interest rates through July 2019, in chart by Federal Reserve of St. Louis.

If interest rates rise, it becomes more expensive to borrow money. Monthly payments for homes, cars, and new factories all rise. Evidently, the US economy was growing robustly enough in the 1940 to 1980 timeframe that US short term interest rates could be raised without much economic harm. The big concern seemed to be an overheating economy as a result of too rapid growth.

The huge increase in interest rates in 1980-1981 put an end to any concern about an overheating economy (compare Figures 6 and 7). Oil prices came back down once the world economy was in recession from these high interest rates.

Figure 7. Historical inflation-adjusted Brent-equivalent oil prices based on data from 2019 BP Statistical Review of World Energy.

[6] Starting about 1980, the US economy began substituting rapidly growing debt for rapidly growing energy supplies. For a while, this substitution seemed to pull the economy forward. Now growth in debt is failing as well.

Figure 8 shows how the ratio of total US debt (including governmental, household, business and financial) has changed since 1946. It becomes clear that once the big “push” that the economy received from rising consumption of energy products began to fail about 1980, the US moved to the addition of debt as a substitute.

Figure 8. Ten-year average increase in US debt relative to GDP. Debt is “All Sectors, Liability Level” from FRED; GDP is in dollars of the day.

I think of debt as being one of many kinds of promises. Figure 9 illustrates that while the total amount of goods and services has been growing, debt levels and other kinds of promises have been growing even more rapidly.

Figure 9. Promises of future goods and services tend to rise much more rapidly than actual goods and services. Chart by Gail Tverberg.

Many things can go wrong with this system. If the growth in added debt slows too much, we can expect to start seeing financial problems similar to those we saw in 2008. Also, if the level of debt (such as student debt) gets too high, its payback interferes with the purchase of other needed goods, such as a home. If energy providers decide prices are too low and stop producing, then promised Future Goods and Services can’t really appear. Huge defaults on promises of all kinds can be expected. This happens because the laws of physics require the dissipation of energy for physical processes underlying GDP growth.

[7] Since 2001, world economic growth has been pulled forward by China with its growing coal supply and its growing debt. In the future, this stimulus seems likely to disappear. 

Figure 10. Figure similar to Figure 5, with bump that is primarily the result of China’s accelerated growth circled.

China has been financing its rapid economic growth since 2001 with growing debt.

Figure 11. China Debt to GDP Ratio, in figure by the IIF.

We know that low prices for coal have led to flattening production since the 2012 – 2013 period (Figure 1). In fact, part of the reason for the flattening of non-financial corporate debt in recent years in Figure 11 may reflect swaps of uncollectible coal mine debt for equity, removing part of coal mine debt from the chart.

The failure of coal production to grow rapidly puts China at an economic disadvantage because coal is a very low-cost energy source. Any substitution, even imported coal, is likely to raise its cost of making goods and services. This makes competition in a world economy more difficult. And China’s debt level is already very high, putting it at risk of the problems discussed in Section [6].

[8] The world economy needs much more rapidly growing debt if energy prices are to rise to a level that is acceptable to energy producers. 

Debt acts like a promise of future goods and services. Growing debt, plus increases in other types of promises of future goods and services, helps to keep energy prices high enough for energy producers. There are at least three reasons that growing debt helps an economy:

First, increasing debt can be used to build factories, and these factories hire large numbers of people. The factories utilize various raw materials and energy products themselves, raising demand for goods and services. Furthermore, the workers hired by the factories, with their incomes from their jobs, also raise the demand for goods and services. These goods and services are made with commodities. Growing debt thus raises demand for commodities, and thus their prices.

Second, increasing debt levels by governments are often used to hire workers or to raise benefits for the unemployed or the elderly. This has a very similar effect to building new factories. These workers and these beneficiaries can afford more goods and services, and these goods and services are made using commodities. Governments also use some of their funds to build schools, pave roads and operate police cars. All of these things require energy consumption.

Third, consumers can afford to buy more of the output of the economy, if their debt levels are increased. If debt can be structured so that anyone who walks into a car dealership can afford a new car (such as longer durations, lower interest rates, and no down payment), this added debt allows increasing demand for new cars. It also allows increasing demand for the energy products used to make and operate these new vehicles. Furthermore, if new homes can be made more affordable for young people, this works in the direction of adding more mortgage debt.

The Institute of International Finance (IIF) reports that the ratio of world debt to GDP (red line on Figure 12) has been falling since 2016. This falling ratio of debt to GDP no doubt contributes to the low-priced energy problem with which energy producers are now struggling.

Figure 12. IIF figure showing total world debt and the ratio of total world debt to GDP.

Non-debt promises of many types can also have an impact on energy prices, but it is beyond the scope of this article to discuss their impact. Some examples of non-debt promises are shown on Figure 9.

[9] The world economy seems to be running out of truly productive uses for debt. There are investments available, but the rate of return is very low. The lack of investments with adequate return is a significant part of what is preventing the economy from being able to support higher interest rates.

In a self-organizing networked economy, market interest rates (especially long-term interest rates) are determined by the laws of physics. Regulators do have some margin for action, however. They can raise or lower certain short-term interest rates. They can also use their central banks to purchase existing securities, thereby influencing both short- and long-term interest rates. In addition, they can indirectly affect the system by raising and lowering tax rates and by adopting stimulus programs.

Market interest rates, in some sense, tell us how productive investments truly are at a point in time. Years ago, investments that the economy was able to make were far more productive than the investments we are making today. For example, the first paved road in an area had a huge beneficial effect. New roads were able to open whole areas up to commerce. Once an area had been developed, later investments were much less beneficial. Fixing up a road that has many holes in it takes energy and materials of many types, but it doesn’t really add productivity to the system. It just keeps productivity from falling.

After a point, adding new roads or other infrastructure doesn’t add much of anything. This is especially the case if population is level or falling. If population is falling, it would likely make sense to reduce the number of roads, but this is difficult to do, once there are a few occupied homes along a road.

As another example, a car that gets a person from home to work is a great addition if the vehicle allows the person to take a job that he could not otherwise take. But added “bells and whistles” on cars, such as air conditioning, a musical system, sturdier bumpers, and devices to reduce emissions, are of more questionable value, viewed from the point of view of allowing the economy to function cheaply and efficiently.

Another type of investment is education. At one point, a high school education was sufficient for the vast majority of the population. Now additional years of schooling, paid for by the student himself, are increasingly expected. An investment in higher education can be “productive,” in the sense of helping to differentiate himself/herself from those with no post-secondary education. But the overall level of wages has not been rising enough to compensate for all of the extra education. It is the growing complexity of the system that is forcing the need for extra education upon us. In a sense, the extra education is a tax we are required to pay for having a more complex system.

The need for pollution control might be considered another kind of tax on the system.

Our hugely expensive health care system is another tax on the system. After paying the cost of health care, workers have less funding available for buying or renting a home, raising a family, food and transportation.

[10] Since 1981, regulators have been able to prop up the economy by reducing interest rates whenever economic growth was faltering. Now we have pretty much run out of this built-in source stimulus.

Many observers have noted that central bankers are running out of tools to fix our economic problems. The lack of room to take down interest rates can be seen in Figure 6.

Figure 13 shows that long-term patterns of reductions in interest rates (darker bands) have happened previously. These reductions in interest rates came to an end because they couldn’t go any lower, given inflation expectations and likely levels of defaults. We seem to be facing a similar situation today.

Figure 13. Chart from the Financial Times showing historic interest rates and periods during which interest rates fell.

According to Figure 13, there have been three periods of falling interest rates in the last 200 years:

  • 1817-1854
  • 1873-1909
  • 1985-2019

In the gap between the first two periods of falling interest rates (1854 to 1873), the US Civil War took place. This was a period of very poor return on investments. Somehow it ended in war.

Immediately after the second two periods of falling interest rates (after 1909), the world entered a very unstable period. First there was World War I, then the Great Depression, followed by World War II.

Now we are facing the possibility of yet another end-point for the take-down in interest rates.

[11] The total return of the economy seems to be too low now. This seems to be why we have problems of many types, ranging from (a) low interest rates to (b) low profitability for energy producers to (c) too much wage disparity. 

All of the problems listed above are manifestations of an economy that is not producing sufficient total return. The laws of physics distribute the problem to many areas of the economy, simultaneously.

A person wonders what could be ahead. We seem to be reaching the end of the line regarding the takedown of interest rates, as shown in Figure 13. If a takedown in interest rates is possible, it acts as a relief valve for some of the other problems the economy is facing, including too much wage disparity and energy prices that are too low for producers.

In Section [10], we saw that when the relief valve of lower interest rates had disappeared, wars and depressions have taken place. We can’t know the precise outcome this time, but our current situation doesn’t look good. Will we encounter wars, or a serious depression, or financial problems worse than 2008? We can’t know for certain. Or will we somehow find a way around serious problems?

 

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.
This entry was posted in Financial Implications and tagged , , , , . Bookmark the permalink.

1,324 Responses to Our Energy and Debt Predicament in 2019

  1. James says:

    Too much existing debt and too little growth (not enough net energy) to service it equals debt deflation. The price consumers can pay for energy is being deflated by debt service. Debt increases and is never put to rest because the economy can never produce a real surplus to keep things running and also pay-off the debt. The average consumer can never obtain enough surplus to pay-off their debt. Putin says the price of oil could be $25 a barrel in 2020 while the U.S. considers a 100-year bond and negative interest rates spread. Even with more debt there is an increasing head-wind of decreasing net energy. It may be time for helicopter money, but the one-percent don’t like giving anything away that they can put in their own pockets. If a typical business cycle were to happen, prices for energy might fall so low as to put the entire industry out of business, or so it seems.

    https://www.zerohedge.com/news/2016-10-09/economic-recovery-feels-weak-because-great-recession-never-really-ended

    • Duncan Idaho says:

      In the words of one Cuban revolutionary, “revolution is not an apple that falls when it is ripe. You have to make it fall.”

      • Kowalainen says:

        Unfortunately the lions share of the apple is already eaten. Nobody can stage a revolt in a JIT society. Once the supermarket shelves empties, that’s the end of that. And try to make a revolution on an empty stomach. It quickly fizzles our into infighting for the scraps among the revolutionaries.

        The push towards more urbanization guarantees that no such revolt can ever take place.

    • denial says:

      What does this mean?
      https://www.cnbc.com/2019/09/13/mortgage-rates-had-worst-week-in-3-years.html

      I don’t understand I hear negative interest rates then I hear interest rates climbing…what is it? Who would buy a 50 year bond? I can’t see this going on for 20 years I don’t want to wait 50 years for something to mature and I think most people feel this way…

      • It means that US mortgage rates just increased a little. 20 basis points is equivalent to 0.2%. For example, if a mortgage rate as 4.0% and increased to 4.2%, that would be an increase of 20 basis points, and would make monthly payments for the life of the loan higher.

        In the US, 30 year mortgages are standard, but the length can range from about 10 to 40 years. These mortgages can be either fixed rate or variable rate, with the rate variability starting after a specified time period, such as 5 years.

        If rates fall, many people on fixed rate mortgages refinance their loans, so as to take advantage of the new lower rate. What the article is talking about is an uptick in interest rates, making cost less advantageous.

        The negative interest rates are mostly in Europe and Japan, and are particularly on government bonds. But they can be on other kinds of debt as well. There was one recent story about a negative interest rate on a mortgage.

        Pension plans, banks, and others that depend on interest income don’t like interest rates too low. But borrowers do. The article is point out that from the point of view the borrower, the new higher interest rates are a problem.

        To the extent that changes such as these would be affecting European bonds with negative interest rates, they would be making interest rates less negative.

    • Davidin100millionbilliontrillionzillionyears says:

      James:
      “Too much existing debt and too little growth (not enough net energy) to service it equals debt deflation. The price consumers can pay for energy is being deflated by debt service. Debt increases and is never put to rest because the economy can never produce a real surplus to keep things running and also pay-off the debt. The average consumer can never obtain enough surplus to pay-off their debt.”

      so the root of the problem is decreasing net energy…

      no central banker or economist will be able to find a solution to this problem…

      it’s like The Big Endgame…

      this next crisis, which seems likely to hit in 2020, is vastly different from 2008/2009 when oil prices were way higher and interest rates were much more above zero…

      CBs and economists may think they can recover from this because they thought they solved the last crisis…

      there will be global recession again, but this time with no recovery…

      it’s a new situation, and the question remains whether the result will be severe recession with no recovery…

      or…

      The Collapse…

    • Somehow, this reminds me of the prelude to the rollover from 1999 and 2000. Every computer system had to be fixed to work around the problem. There was considerable fear that some would be missed. But of course, that turned out well.

      Unfortunately, the UK leaving the EU most likely has a lot more in common with the collapse of the Central Government of the Soviet Union. Every individual republic was on their own again. This produced a big dip in GDP in the future.

  2. Xabier says:

    Mending Roads Pre-Fossil Fuels:

    A common theme in 19th century European art was the ‘Dead Road-Mender’: a poor peasant, too old and weak to labour in the fields any longer, is seen dead at dusk, with his stone-hammer in hand, having been set to filling up the potholes in the road near his village.

    In more Romantic paintings, the Angel of Death is seen hovering about, or taking him up kindly……

    Thanks for yet another excellent article, Gail.

    • Road mending was not quite as awful a job as the original road building, I expect. The old and the weak could do it. But cutting pieces of stone and dragging the stone long distances over unpaved roads, would not be for the old and weak.

      • Xabier says:

        Setting the old and poor to road-mending was also a way of finishing them off so they wouldn’t be a burden on tax payers – humiliated and exhausted, it broke their spirit. Women could be forced to do it as well, of course.

    • AlfredKiev says:

      This morning, in Kiev, I looked out of my window and saw an old man – a road sweeper. He was diligently brushing every scrap of paper that he could find in the street into receptacle that he held in his other hand.

      It was a strange sight since the road was covered with potholes and the nearby pavements could only be described as decrepit. Yet, he kept his eyes down and went after every little tram ticket that he could find on “his” patch of road. Sad.

  3. Maybe in a future column you can explain how ExxonMobil and other oil companies stock declines in value (XOM down 25% over five years) but they continue paying dividends. I think they’re doing it by selling assets?

    Quote: ExxonMobil stock has fallen 7.9% in the past two years. The fall in its stock and the 13.0% rise in its dividend payment have led to a surge in its dividend yield to 4.7%. The stock’s dividend yield stood at 3.7% in the second quarter of 2017.

    • Don says:

      For the 5 years ending 12/2018, XOM averaged $10.6b a year in free cashflow (after avg. dividends of $12.6b and $22.1b in capital expenditures per year). Short term stock price has little to do with their dividend policy.

      • Pension plans have traditionally heavily invested in oil companies and electric utilities because these companies are ones that can be depended on for dividends. Whether or not the stock will rise is unknown, but if they pay well on dividends, it tends to hold the price up over time, and the return including dividends is likely to be adequate, if not outstanding.

        • Tim Groves says:

          My take, oil is still a good bet for long-term investors because there will always be a demand for it.

          We won’t move on from the oil age as easily as we moved on from the stone age.

          Once the oil industry goes, it all goes.

          Let the next batch of anti-ff protesters superglue themselves to oil company office front entrances, and leave them there.

          • There is also the possibility (% probability) that after the very next GFC (or another future round) the oil production (incl. “price”) would indeed bounce back again. However, by that time “investors/interest rate” – concepts as understood today won’t be around anymore as the chaos of broken JITs would be at some level propped up by the govs at the more fortunate places. In other words at that junction the mixed economic system pivoting way more towards the state domain, think about it like war economy of WWII era but even more intense, e.g. back than US gov could trim power of the big MNCs and banks a bit, nowadays in post GFC context it would be rather more or less complete takeover.. Used only as an example, more likely it will take place in other countries.. or smaller balkanized ver. of the US.

            I guess this might have ~75% probability for ~2025-35..
            Basically an attempted artificial floor put bellow the collapse for a short while..

          • Kowalainen says:

            Ironically super glue is made from FF’s. They better tie themselves using homegrown hemp rope, that is after they have smoked the leafs so that nothing goes to waste.

            Eco hipster slacktivists. Suckling the petroleum wellhead while protesting against the industry which maintains their delusions of a sustainable fossil free tomorrow. And that glowball warmongering narrative on top of it.

  4. Dana says:

    I don’t know about the other posters here, but for me, a lifetime of servicing debt has been an ordeal. I have had few vacations, very few personal days off, too much work. I am trying, at the age of fifty-seven, to pay off personal debts, and avoid taking on any new debt. I would like to transition to a lifestyle where I don’t feel like a slave to an uncaring system. Maybe others feel the same way.

    • Robert Firth says:

      Dear Dana

      First, you have my deep and unalloyed sympathy. For many, debt has become a way of life, and for far too many, that way of life has become a necessity. But I would urge you to try hard to become debt free. Please allow me to share some thoughts.

      Fortune gave me a family with a tradition of frugality, which I learned as a child and tried to follow. I have never had any credit card debt, never taken out a car loan, and after getting married my only debt was a mortgage.

      But in 1983, we moved to the US, and fell into the consumer lifestyle. A house in the suburbs, a three mile drive even to buy a loaf of bread, and hence two cars. Five children to raise. Federal, state, county, city and school taxes. Add that up, and the US is a very high tax society. In almost 15 years, we never took a foreign holiday, something which had been readily affordable in England.

      Then fortune again smiled on me, and in 1997 I was offered employment in Singapore. So, no house, just a rented apartment for which my new employer provided a good allowance; no car (I bought 3 used cars in my life, and one new. Saved up for three years to buy the first, …), and again with some frugality, was able to live on 75% of my income.

      And over the years that income increased, but my expenses did not. So some holiday travel, this time by business class, and more saving. By 1 January 2001, I was 100% debt free, and determined to remain so.

      “Neither a borrower nor a lender be”, said the Bard, and of course he was right.

      If it will not offend, I would like to pray for you and for the success of your resolve. Tomorrow, in the local Chapel of the Eucharist, in the presence of the Blessed Sacrament.
      For there is no better way to go to sleep, than in the knowledge that you are in debt to none, save the One by whom all debts will be forgiven.

      • Dennis L. says:

        “For there is no better way to go to sleep, than in the knowledge that you are in debt to none, save the One by whom all debts will be forgiven.”

        Very nice, it would seem many of our frustrations and personal problems have very simple solutions. Christians seem to have in many cases let go of their faith convinced secular humanism was a better alternative; it would seem that is not the case.

        Dennis L.

      • Robert Firth says:

        Dear Dana

        Just to report that, as promised, I visited the Chapel on your behalf this morning. And since this parish is dedicated to Our Lady of Succour, I also asked for the intercession of the Blessed Virgin, and recited the Ave Maria.

        Blessed be.

        • doomphd says:

          Hey Dana, can you let us know how all this petitioning of the Lord works out for you? I’d be curious to find out. Thanks.

          • If petitioning the Lord can “tune down” a person’s own desire to “keep up with the Joneses” on everything, it has the problem 99% solved.

            • Robert Firth says:

              Thank you, Gail. I follow the philosophy of Ibn Sina, who in the Kitab ash-Shifa taught that God does not perform miracles, but works through the medium of the Natural Law. However, I know from my own personal experience that this Law does permit spiritual communication, and so it is permissible to petition for such an intervention.

              And yes, it is almost precisely that for which I petitioned.

            • Kowalainen says:

              Indeed.

          • doomphd says:

            you cannot petition the Lord with prayer. you can go through the effort, of course, but you might as well ask your favorite rock formation for favors.

            • There are a lot of people with impressive results, however.

            • on Sunday, I watched a bumble bee patiently harvesting a huge sunflower head, patiently moving from one stamen (is that the right word?) to the next. I could have spent the afternoon absorbed by that bee.

              My mind was full of the intricacy of the Fibanacci spiral, the bee knew nothing of that and got on with what it needed to do.

              Then it seemed to me that the bee was teaching me about what’s important in life.

              Much better than any sermon

            • John Saunders says:

              For someone to correctly understand this they first would have to undersatand the need for a relationship with a creator. If you do not believe in a creator then one cannot have a relationship with or petition a single cell. No wonder there is all this confusion. Nothing cannot exist without a beginning. That is where we need to begin. Amazing that the planet is exactly where it needs to be to cause us to not be destroyed. Some credit this to chance. Some to a higher intelligence we refer to as God (Creator).

            • doomphd says:

              i bet that assertion will not hold up to a rigorous statistical analysis. how many prayers were not answered? Napoleon said God is on the side of those with the biggest cannon. these days, God might be behind those with the most sophisticated and effective missile defense systems.

            • Robert Firth says:

              … which is exactly what I did, in the Sanctuary of the Temple of Isis on the isle of Philae. And was answered. Though perhaps that was because of the rose I placed on the altar, as much as the petition.

        • wasn’t Blessed Be one of the required ‘exchanges’ in The Handmaids Tale’? (I couldn’t bear to watch past halfway through the first episode)

          I respect the fact that you have a faith, but Be careful where you offer up your prayers, they may just be answered in the kind of future you weren’t expecting.

          We should be collectively aware that the ‘age of reason’ coincided more or less with the advent of the age of fossil fuel use.

          Before the age of reason, freedom of thought could have dire consequences. It took 400 years for the church to formally accept the truth of Galileo’s teachings. Universal distribution of surplus energy allowed the universal distribution of clear thinking.

          We allow ourselves to forget that.

          Remove that surplus energy, and the cloud of denial will return. It has never left millions of minds. The certainty of holy writ still darkens vast swathes of human minds. They will be happy for the return of priests to inflict it on all of us again.

          As to debt. I too have been fortunate. Not through a faith, but by the sheer chance of having a gift that other people wanted to use and pay for. It made me comfortable and debt free. Though not obscenely rich.

          Just as well—I would have been useless at anything else.

          But I have always been aware that, by the same chance there are millions less fortunate than me.

          They chase the wealth mirage, not realising what it is, the illusion created by the infrastructure supported by fossil fuels, which have been very unevenly and unfairly distributed.

          • John Saunders says:

            Living by chance and beholden to the physical causes one not to understand the reason for the requirements of the whole person. Too much knowledge can cause one’s mind to become introverted (given to examining own sensory and perceptual experiences).

            • doomphd says:

              i suppose you agree with the King of Austria when he criticized Mozart for having too many notes in his music? one can never have too much knowledge.

            • John Saunders says:

              It has been said: too much of anything can become harmful. Ecclesiastes 1:12-18 (NKJV).

            • Ecclesiastes 1:18 (NIV) For with much wisdom comes much sorrow; the more knowledge, the more grief.

              That is sort of the way it is. It is more pleasant to make models of how a person thinks the world and the world economy ought to work.

            • Kowalainen says:

              Knowledge is symbolic, semantic and syntactic.

              Reality, however, just is.

              The external world as we perceive it is a phenomenon filtered through our limited sensory inputs, filtered and processed to concepts of reality inside our brains which forms our limited understanding of the world around us.

              Believing that what we think of and perceive as the true objective reality is a delusion. It is a convenient manifestation of the smoke and mirrors inside our skulls which is an artifact of biological computation adapted and created by the pressures of evolution.

              Thus there is no true reality behind our perception, let’s say of say the color red. It’s all a manifestation of this processing, however real it might be to the person experiencing it.

              Believing that true knowledge in the forms of conceptual representations inside our skulls and written in books is nothing else than a delusion and a craving for our minds to seek an ultimate understanding in a reality that defies all explanation.

          • Or perhaps the cloud of denial has already returned. We hear day after day that we don’t really need energy. We hear that green this and that can save us. If we think the right thoughts, or behave highly, we can conquer Co2 and global warming. Strangely enough, another belief is, “He who dies with the most toys wins.” We can save ourselves, if we just think enough nice green thoughts.

            I don’t think religion has any corner on false beliefs. Ideas self-organize to suit the needs of the time. They can be false ideas, if that is what suits the needs of political leaders.

    • Tom says:

      Here in the US you can never be truly debt free. My wife and I have no debt for almost 20 years. But we still must pay property taxes which are high where we live. We live on a private road so we must pay for snow removal and road maintenance. And of course being self-employed we must purchase our own health insurance. All of which keeps us tethered to the fiat currency system even though we have no “debt”. I think Dmitry Orlov has the right idea, ditch the car and the house and live on a sail boat. I wish I could convince my wife to do that.

      • Davidin100millionbilliontrillionzillionyears says:

        Orlov has done very well monetizing his writing online with his blog…

        he has recently said that he now lives on a farm in Russia which I’m sure he could easily purchase since his income in USD must exceed $100,000 per year…

        I would guess that his wife got very tired of living on a tiny boat…

        • I think the little boy is more of the question. He needs to attend a school.

        • Xabier says:

          Pushing that utterly ridiculous boat idea and then ditching it makes one lose respect for Orlov. Not quite all, because he has written some very good and perceptive stuff, but is now just a rather tedious Russian patriotic propagandist, and the heavy-handed sarcasm habitual to Russians becomes wearing after a while, even if the target (the US and the globalists) merits it.

      • Xabier says:

        Yes, they’ve got us, and as things decline the parasites will grow more pressing in their demands.

        Just as the old feudal lords in Europe wouldn’t allow people to grind their own corn: they had to go to the lord’s mill, and pay for the service.

        By the late 14th century in England, 95% of people were stuck in the money economy, having to pay for services and taxes in cash, not kind.

        • Robert Firth says:

          Exactly, Xabier. The monetisation in England started with the “Assize of Bread” act of 1266, which established the famous “penny loaf”. The butchers got their cut in 1272, when meat was monetised. The process was completed in 1801, when all the village commons in England were stolen, so the people could no longer keep their own fowl:

          The Law doth punish man or woman
          That steals the goose from off the common
          But leaves the greater felon loose
          Who steals the common from the goose.

          But I think the all time prize for pointless rapacity goes to the priests of ancient Israel, who issued a religious prohibition on people slaughtering their own animals. They had to have them slaughtered by the priests, who then took the best part of the animal for themselves.

        • My impression is that back in the day when slaves were used extensively, a major task for female slaves was grinding grain. This task is very energy intensive.

    • I think timing is everything, with respect to attitudes about debt.

      You say you are fifty-seven, so you were born about 1962. You turned 18 about 1980. Ronald Reagan was elected president in 1980, and began serving in 1981. This was the time when debt suddenly wen’t from being a “bad thing,” when everyone’s parents warned their children about how awful debt was, to becoming a miraculous thing called “leverage,” by which fortunes could be made. Interest rates were terribly high in the 1980s.

      Somewhere along the line, businesses figured out that they weren’t nearly as profitable as in the 1950s and 1960s. They needed to squeeze every nickel they could. They didn’t want to train and keep their workers for many years. It made more sense just to hire workers on as temporary a basis as they could. The generous pension plans that companies were giving away in the 1970s gradually disappeared, and were replaced by individual savings plans that weren’t nearly as generous, and didn’t have the guarantees attached.

      Those of us who were born earlier than 1962 were more likely to have parents who grew up during the Depression. They would tell us regularly how awful debt was. We would go to church and hear, “The love of money is the root of all evil.” Also, “Neither a borrower nor a lender be.” And it helped a lot that companies were in good enough financial condition to look out for their employees, paying them more generously than now. And some of us were fortunate enough to have purchased property, back in the 1970s when inflation rates were high. We ended up with a lot of price appreciation, which padded our balance sheets.

      But as I said, the situation changed remarkably after 1980. Once the situation around a person changes, it is hard not being swept in by the changes. Lenders have been very willing to offer debt to people–often more than they can handle. If a person’s co-workers are all buying fancy new cars using debt, it is hard not to go along and do the same thing. If houses in the “right” neighborhood are expensive, but a person can qualify for a loan, it seems like a good idea to go along with everyone else.

      I feel very bad for you and others caught in by the debt trap. A person needs some kind of vehicle to get to work in the US. And homes have risen remarkably in price. It is a difficult problem to fix today, with so much temptation to borrow all around.

  5. Mark Mywords says:

    Dana, just do what the govt does and write more markers, aka Kick the can down the road. One day you will die and the markers will be worthless. On day the US of A will die and the markers will be worthless. Just hoping that I and my children outlive the US.

  6. It's different this time around....YES says:

    The passing of the torch …..
    T. Boone Pickens was a legendary oil tycoon known for his colorful personality and generous donations to worthy causes. Born in a small town in Oklahoma, he spent most of his adult life in Texas. He founded Mesa Petroleuem, which became one of the largest independent oil and gas companies in America. The 1980s corporate raider became an advocate of energy independence. He gave away more than one billion dollars to philanthropic and educational causes including his alma mater Oklahoma State University, Meals on Wheels, hospitals, medical centers, kids at risk programs, and the military.
    We invite you to share condolences for T. Boone Pickens in our Guest Book.
    Died: Wednesday, September 11, 2019. (Who else died on September 11?)
    Details of death: Died at the age of 91 from natural causes
    http://www.legacy.com/news/celebrity-deaths/notable-deaths/article/t-boone-pickens-1928-2019-legendary-oil-tycoon

    Remarkable man and remember ten years ago he was sounding the peak oil alarm.
    Claimed every inch of the USA was poked and looked like Swiss Cheese.
    Had a website going back then for a transition. Never will see Oil men like him again!
    R.I.P.
    Thank you Gail in altering us all readers that there are promises that will never be lived up to…
    I.O.U debt is the promise.

    • FRED D GUNTER says:

      Most of his money came from oil, one of the biggest causes of the climate crisis, which has already killed or put millions out of their homes, and he thought wind was another profit source. His legacy will not be should not be about charity.

      • Without fossil fuels, we would not have enough food for everyone. We could not cook those foods either. The vast majority of us would spend our time doing low level agriculture. The situation doesn’t have a simple solution.

        I have been corresponding with my sister Lois Tverberg, who is a writer of religious books, about what the word that is repeated endlessly in the book of Ecclesiastes really means. We have decided it means “entropy.” (Lois was a physics major as an undergraduate.) The Old Testament book is saying, “Entropy, entropy, everything is entropy.” It is not possible to have energy dissipation without entropy. They are two sides of the same coin. Today’s human population cannot exist with growing energy consumption (also known as “dissipation”). It is an unfortunate issue, but it is basically unsolvable, without bringing human population down to a very low level.

        • Duncan Idaho says:

          Yep–

        • Robert Firth says:

          “It is an unfortunate issue, but it is basically unsolvable, without bringing human population down to a very low level.”

          Gail, if a problem has only one solution, that solution will eventually come to pass.

          But I prefer the language of the Vulgate: Vanitas vanitatum, omnia vanitas. Or, from a later prophet: Nolite thesaurizare vobis thesauros in terra

        • Sven Røgeberg says:

          Hi Gail. I think you ment to say: «Today’s human population cannot exist withOUT growing energy consumption (also known as “dissipation”).
          I dont have an english Bible, but are the word mentioned here the one you ment?:
          «It emphatically proclaims all the actions of man to be inherently “hevel” (a word meaning “vapor” or “breath”, but often interpreted as “insubstantial”, “vain”, or “futile”) […] as the lives of both wise and foolish men end in death. While Qoheleth clearly endorses wisdom as a means for a well-lived earthly life, he is unable to ascribe eternal meaning to it. In light of this perceived senselessness, he suggests that one should enjoy the simple pleasures of daily life such as eating, drinking, and taking enjoyment in one’s work, which are gifts from the hand of God. The book concludes with the injunction: “Fear God, and keep his commandments; for that is the whole duty of everyone” (12:13

          .

      • It's different this time around....YES says:

        Thank you Gail for the other perspective.
        In all fairness to T Boone Pickens, he was a product of a different age and place.
        I was born around 1960 and a gallon of Petro was 25 cents! There was no talk about the climate and the energy crisis came and went in the early 1970s . The environmental movement started about then and it was about cleaning it up!
        The climate crisis was put out there in the late 1980s! Was canvasing for GreenPeace
        As a matter of fact T Boone Pickens was a proponent for alternative energy! He had a big wind farm project in Texas that never took off…as Gail has explained…he learned the hard way.
        https://www.miamiherald.com/news/business/article234975657.htmlater in his career, Pickens championed renewable energy including wind power. He argued that the United States needed to reduce its dependence on foreign oil. He sought out politicians to support his “Pickens Plan,” which envisioned an armada of wind turbines across the middle of the country that could generate enough power to free up natural gas for use in vehicles.
        “I’ve been an oilman all my life, but this is one emergency we can’t drill our way out .
        Pickens’ advocacy for renewable energy led to some unusual alliances. He had donated to many Republican candidates since the 1980s, and in the 2004 presidential campaign he helped bankroll television ads by a group called Swift Boat Veterans for Truth that attacked Democratic nominee John Kerry. A few years later, Pickens endorsed a Kerry proposal to
        Pickens couldn’t duplicate his oil riches in renewable energy. In 2009, he scrapped plans for a huge Texas wind farm after running into difficulty getting transmission lines approved, and eventually his renewables business failed

      • Tim Groves says:

        “The climate crisis?”

        There isn’t one. 😉

        It’s a scam pushed by globalists and collectivists to collect and profit personally from yet more fees on the energy we all use.

        The climate alarm agenda has sent electricity prices through the roof in many industrialized countries, damaging their economies, impoverishing their citizens, and sending the most vulnerable to an early grave. But that’s OK. After all, climate alarmist think humanity is a cancer on the planet.

        The agenda as it is being implemented today, started with the late Maurice Strong.

        • I don’t think that self-organizing systems depend on the action of one person. Unless these ideas fit in with what others are seeing and hearing, and a larger narrative, they don’t work.

          What makes the Maurice Strong situation strange is that he came from the Canadian oil industry. This is the “wrong side” to be coming from.

          I know that some of the peak oil people were really upset by the climate change narrative, because they saw it as a way of denying the limits of fossil fuel extraction. And I agree with them. No problem with fossil fuels. In fact, we can extract huge amounts in the future. The IPCC models basically assume that energy is not needed for the economy, and that prices can rise arbitrarily high, so that every possible bit of coal, oil, and gas we are aware of can be extracted. They make no sense from an energy point of view.

          The climate is certainly changing, but whether we can do anything about it is a different story.

        • Tim Groves says:

          If it’s changing perceptively at present—and that depends entirely on one’s semantics and definitions—that isn’t the same thing as it being a crisis. That’s my main point.

          And if it’s changing, this may or may not have something to do with anything people have done. After all, God and Gaia move in mysterious ways and keeping the average weather static or stable from year to year isn’t part of their game plan. Hence, all those long ice ages the world keeps going into and coming out of without any help from mankind. Hence the hundred year California Drought, the Year Without a Summer and the Dustbowl—six years without rain in some parts of the Midwest—that forced Henry Fonda to up stakes and move to California.

          When we were young, the sort of changes in weather some of us notice today would not have been recognized as CC but would be put down to natural variation. If and when New York gets Atlanta’s climate and Atlanta gets Havana’s (and this has happened long ago in the past), that will be CC we can all agree on.

  7. MG says:

    Today in Slovakia: With the declining food growing, the protected wild bears come closer to the human dwellings and attack domestic animals and humans. Now the humans must fear…

    https://www.cas.sk/clanok/883450/rodina-farmara-petra-je-v-soku-na-pohlad-ktory-sa-im-naskytol-za-plotom-zahrady-tak-skoro-nezabudnu/

    • Tim Groves says:

      The situation is similar in the Japanese countryside.

      Twenty-five years ago, there were fears that black bears were soon going to be extinct in Western Honshu, but they are still here. They already are virtually extinct in Kyushu (no sightings since 1987) and Shikoku (where only 20 or 30 individuals were thought to remain as recently as 2013). The bulk of the black bear population lives in the mountains of central and Northern Honshu and is thought to be between 10,.000 and 30,000 at present. But nobody really knows.

      Now we are coming up to the persimmon, acorn and chestnut season, the bears are on the prowl looking to fatten themselves up for the winter. They are mostly nocturnal and make there presence known by scratching the trunks of trees or climbing and then breaking off branches to get at fruit and nuts. My newspaper delivery man is also nocturnal and sees one every so often.

  8. It's different this time around....YES says:

    Good Morning Doomers and FWers!
    News to chew on with your morning cup of Joe!
    https://www.bbc.com/news/world-middle-east-49699429

    Drone attacks have set alight two major oil facilities run by the state-owned company Aramco in Saudi Arabia, state media say.
    Footage showed a huge blaze at Abqaiq, site of Aramco’s largest oil processing plant, while a second drone attack started fires in the Khurais oilfield.
    The fires are now under control at both facilities, state media said.
    A spokesman for the Iran-aligned Houthi group in Yemen said it had deployed 10 drones in the attacks.
    The military spokesman, Yahya Sarea, told al-Masirah TV, which is owned by the Houthi movement and is based in Beirut, that further attacks could be expected in the future.

    Well, we have the right stable genius in the White House to make sure it does happen again!

  9. Gumtoo says:

    It would seem that helicopter money could/will be used (free money to pay down or pay off the debt to those who have it and an equivalent amount of funds to those who don’t) to increase debt further without lowering interest rates. The free money will boost economic activity. That would kick the can a little farther down the road.

    • You might be right. The problem with helicopter money is that it tends to move currency relativities around. The countries that need helicopter money the worst (ones doing poorly, such as Argentina) would find their currencies reduced in value most. Thus, helicopter money is at most a temporary solution by a few rich countries. If it works, it will help raise the prices of fossil fuels, and keep their production up. It is ultimately the fossil fuels that provide the benefit that allows the economy to continue.

Comments are closed.