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.
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1,325 Responses to Our Energy and Debt Predicament in 2019

    • Duncan Idaho says:

      Long Range Attack On Saudi Oil Field Ends War On Yemen
      Today Saudi Arabia finally lost the war on Yemen. It has no defenses against the new weapons the Houthis in Yemen acquired. These weapons threaten the Saudis’ economic lifelines.

      • No kidding! This is bad for Saudi Arabia.

        Yemen is horribly overpopulated and suffering from peak oil. It has a terrible problem with inadequate water supply as well. It seems to still allow (rich) men to have multiple wives. Permitting multiple wives helps keep the population growing.

        • gpdawson2016 says:

          Rich men having multiple wives is natures form of socialism 😀

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

            What goes around comes around! Women have rights too!

          • Well-educated women marrying well educated men increases household wage disparity, because well-educated women expect that their husbands will be well educated as well.

            Back when women rarely worked outside of the home, it was the husband’s wages alone that determined the wealth of the family. If quite a lot of husbands married wives who earned low wages, that flattened the distribution of family incomes. But once high earners started marrying high earners, that ramped up the extent of wage disparity.

    • Robert Firth says:

      Thoughts. First, the background. For years, the diabolical trinity of Saudi Arabia, the US, and Israel have been doing all in their power to destabilise the Middle East. The Saudis have massacred civilians in Yemen without restraint, seemingly secure in their military supremacy. And they have been losing.

      Now come the drones. Here’s what I wrote in a lecture I gave many years ago:

      “The drone – flies anywhere, kills anyone. Being pilotless, it is safe for the user. But,
      more important, it is anonymous. In addition, it can be miniaturised, built cheaply in a garage, and mass produced with simple tools. In other words, it is the ideal weapon, not for governments, but for anarchists, insurgents, and revolutionaries.”

      And it couldn’t happen to a more deserving cabal of tyrants. Perhaps with John Bolton gone, and the Trump administration purged of the remaining neocons and Israel Firsters, the US will wake up to the fact that their natural ally in the ME is Iran, and their implacable enemies are … you fill in the blanks.

      • Pintada says:


      • Trumps kids are married into I.F. circles/dynasties (not mentioning his other past long term deals), so that won’t happen.. at best he just declines the craziest demands of support.

        In terms of the SaudiYemen situation, the drones are just a tool, out of many, the bottom line it’s more about the classic rehash of the situation where rich-spoiled techno army can’t/won’t commit long term on the ground vs determined poor locals (well having a bit of help from Iran/China/Non Saudi Gulfies.. helps)

        • Duncan Idaho says:

          the drones are just a tool
          Please, they just took 5.5 million barrels of oil off the market.
          KSA has no defense against this attack.

      • Ed says:

        Robert yes evil has the money. It would be lovely if the US federal government served good. But it does not.

        • Robert Firth says:

          “All republics that acquire supremacy over other nations, rule them selfishly and oppressively.”

          Sir Edward Shepherd Creasy, The Fifteen Decisive Battles of the World, Chapter Two.

    • Pintada says:

      The US said, ““The U.S. strongly condemns today’s drone attacks against oil facilities in Abqaiq and Khurais. These attacks against critical infrastructure endanger civilians, are unacceptable, and sooner or later will result in innocent lives being lost.”

      That level of mendacity is the real problem. We, in the US, have participated, funded, and apologized for the Saudi mass murder in Yemen. Now to pretend that we care about the lives of civilians is more than evil.

      Those refineries are sitting ducks. I’m very surprised this hasn’t happened earlier.

      • Kowalainen says:

        Actually, what is Iran going to provide which is not available as off the shelf stuff? Explosives and shaped charges perhaps, but those can surely be bought on the black market for next to nothing or manufactured on the cheap with some previous-century explosive “tech”.

        I mean, we are talking about super glue, balsa wood, a little plastic and a small computer with a couple of cameras and a map stored in memory. Purchasable in Walmart and the rest trivially downloadable from the Internet.

        I bet they have not found a single shred of evidence that Iran is behind this.

    • The Wall Street Journal is reporting:

      Saudi Arabia Shuts Down About Half Its Oil Output After Drone Strikes

      Shutdown amounts to a loss of some five million barrels a day, roughly 5% of the world’s daily production of crude

      The strikes on facilities in Saudi Arabia’s Eastern Province mark the latest in a series of attacks on the country’s petroleum assets in recent months, as tensions rise among Iran and its proxies like the Houthis, and the U.S. and partners like Saudi Arabia. The Houthis have also claimed credit for drone attacks on Saudi pipelines, tankers and other infrastructure during a four-year war.

      This attack appeared to be the most effective, starting large fires at Hijra Khurais, one of Saudi Arabia’s largest oil fields, and at Abqaiq, the world’s biggest crude stabilization facility. Khurais produces 1.5 million barrels a day while Abqaiq helps produce up to 7 million barrels a day.

      A Houthi spokesman said the attack involved 10 drones. Published images of the fire at the Abqaiq facility showed what appeared to be a huge blaze along with plumes of smoke.


      As the world’s biggest exporter of oil, Saudi officials are discussing drawing down their oil stocks to sell to foreign customers to ensure that world oil supplies aren’t disrupted, the people familiar with the matter said.

      My guess is that prices will spike, then fall back down. How quickly they will fall isn’t obvious.

      One big question is how quickly the blaze can be put out and how serious the damage is.

      • Pintada says:

        Gail says, “One big question is how quickly the blaze can be put out and how serious the damage is.”

        I must add, “… and how soon the next attack happens.”

      • As I’ve said before

        The oil era will not end through lack of oil, but by fighting over what’s left of it. What’s going on in Saudi is part of that.

        5% of global supply may not seem a lot, but Saudi Oil is ‘easy’ oil. whereas shale oil is ‘tight’ oil, and much more expensive to get hold of.

        The world economic system cannot function on the tight oil EROEI of about 6 : 1 despite the USA crowing to the contrary.
        That is the critical part of the oil equation

        Does anyone know the proportion of easy oil production that has been put out of action?

        • In a sense, though, Saudi oil is not easy oil. It has a whole system that must be maintained, in order to get oil out of the ground. It needs to have a fairly large military. The World Bank reports the cost of Saudi Arabia’s military to be 8.8% of GDP. This compares to United States with 3.2% and China with 1.9%. Other oil and gas states also require large military expenditures:

          Algeria 5.3%
          Iraq 2.7%
          Kuwait 5.1%
          Libya 15.5% (2014)
          Oman 8.2%
          Russia 3.9%
          United Arab Emirates 5.6%
          Yemen 4.0%

          “Arab World summary” 5.6%

          There are many other costs as well. Saudi Arabia needs to provide jobs and provide subsidies for at least some food and energy, so that its people do not revolt and overthrow the government. These are directly related to having an oil-based economy, located in the middle of the desert.

          I think that the narrow focus of “cost to get oil out of the ground” can be misleading. It certainly doesn’t tell how much about how low a price Saudi Arabia could to sell oil for. That seems to be $85 to $100+ per barrel.

          • my meaning was that the oil itself is easy flowing, not having to be fracked out of rock and stuff.

            obviously military protection of oil everywhere affects the overall cost.

            As time goes on from now, these problems will increase until the costs involved outweigh the benefits of oil itself. The problem will lie in convincing the powers that be that this will be the new level of oil-cost normality—ie zero benefit

    • Kowalainen says:

      Expect new orders to the MIC for extending the Saudi’s defense capabilities. It could have been drones from the usual suspects to highlight weaknesses in the Saudi infrastructure.

      The next wave of drones will be swiftly dealt with.

      And of course the obligatory R2D2’s

      • Robert Firth says:

        There are many types of drone. A crawling drone the size of a cockroach (a skitterbot) can hold enough nerve gas to kill 100 people, and is essentially unstoppable. Program 1000 of them with the right parameters, let them loose at the border, and ten days later the Saudi royals cease to exist.

        At which point the former kingdom gets hit with the biggest slave revolt since Spartacus, and in another ten days the country ceases to exist.

        • Kowalainen says:

          Indeed if the micro drones targets people instead of infrastructure. Manufacturing micro drones however does not come cheap. Advanced mfg capabilities, control systems, sensors and targeting devices are required.

          Swarm attacks on infrastructure of mid size (+10kg) low-tech subsonic (+700km/h) drones could however work since there is no currently existing weapons system that can handle 100’s of mid size jet powered drones, programmed for flying erratically, basically its hobbyist gear with military explosives and off the shelf electronics GPS/Glosnass/etc, fibre optic gyros, micro-controllers/FPGA’s and rudimentary stellar navigation in the case of GPS jamming, being dispatched from a “mothership” and converging on specific targets with proximity fused directed explosives, or in dispersed attacks hitting wellheads, pumps, crackers, pipelines, etc, and other sensitive apparatus all at once. EMP weapons could be used in the interim while the drone swarm become hardened against EM attacks. Small drones is inherently weak with high powered lasers that will eventually cut through or heat up the surface of the drone. But, yeah, the latest MIC gear for sure does not come cheap and might not even be available for unstable and questionable “nation states”.

          Easiest to protect are the refineries since they are not sprawled out like other infrastructure. However, they are easiest to hit due to their size. I estimate that strikes on a few of the really “good” wellheads and pipelines in Ghawar would certainly be felt by the Saudis and the rest of the IC.

        • Xabier says:

          Oh, but as we have seen, in the Skripal affair, ‘battlefield nerve gas’ ain’t what it used to be…. 🙂

      • Duncan Idaho says:

        Dr Strangelove-
        “Mr. President, I’m not saying we wouldn’t get our hair mussed. But I do say no more than ten to twenty million killed, tops. Uh, depending on the breaks.”
        – Gen. ‘Buck’ Turgidson

    • ssincoski says:

      I’m amazed at how casually the world seems to be taking this news. Zerohedge made mention of it but someone at /rcollapse made it clear in the follwoing comment:

      “The target of the drone attack is the jugular of Saudi power and the biggest crude purification plant in the world; it’s not a refinery but a much more important piece of the puzzle in commercialisation of hydrocarbons.

      Crude needs to be stabilized and the sulfur needs to be removed before transportation to a refinery where the cracking takes place. It doesn’t matter how much oil SA can pump from the ground if they can’t ship it. And the House of Saud might not have sufficient funds and time to repair it. It will take years to back up if the initial reports of damage are correct.”

      Seriously, we could wake up to a whole new world tomorrow.

    • Kowalainen says:

      The irony of IC fossil fuel enabled high-tech devices created from an unsatisfiable need for more to put inside ever shrinking devices with growing capabilities than ever before in the known history of mankind. Off the shelf wizardry used against the oil powered industrial civilization which enabled it all.

      Either we accept the rule of nature where there is no governing organ. A totally distributed system with no permanent ruling class, or nature will sort it out by whatever means necessary. As long as the corruptible nomenclature and stagnant old money exists for its own sake and seeks to dominate through conflict and mass psychosis, there will be perpetual war with weapons manufactured from disassembled devices of mass consumption used against its enablers, because there is an implicit, yet obvious military capability, and other “creative” uses of these “benign” and highly sophisticated devices.

      The ruling class assisted by the nomenclature certainly blew the prospects of IC way out of proportion by creating this mess in the first place. Perhaps it is time to cut it back a few notches and reflect over the state of their brutalist centralized single points of failure and consider a networked and distributed self-organizing system in which they can seek to dominate by the means of technical excellence, commerce, connectedness and arts.

      In the mean time; let’s fly some more bullets and spy on the populace in an ever greater extent and continue until the system becomes so centralized and sensitive any a 10-year old smart ass kid can program a micro-controller to disable the works by a targeted drone attack.

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

    Couldn’t even get toilet paper on credit!
    GILLETTE, Wyo. (AP) — At two of the world’s biggest coal mines, the finances got so bad that their owner couldn’t even get toilet paper on credit.
    Warehouse technician Melissa Worden divvied up what remained, giving four rolls to each mine and two to the mine supply facility where she worked.
    Then mine owner Blackjewel LLC filed for Chapter 11 bankruptcy protection on July 1. Worden figured the accounts would get settled quickly.
    “The consensus was: In 30 days, we’ll look back on this, and we made it through, and we’ll be up and running, and it’s a fresh start,” Worden said.
    What happened instead has shaken the top coal-producing region in the United States. Blackjewel furloughed most of its Wyoming employees and shut down Eagle Butte and Belle Ayr mines, the first idled by hardship since coal mining in the Powder River Basin exploded in the 1970s

    The turmoil comes as U.S. coal production is down over 30 percent since peaking in 2008. Utilities are retiring aging coal-fired power plants and switching to solar, wind and cheaper and cleaner-burning natural gas to generate electricity despite President Donald Trump’s efforts to prop up the coal industry.
    A decade ago, about half of U.S. electricity came from coal-fired power. Now it’s below 30 percent, a shift that heavy equipment operator Rory Wallet saw as utilities became less willing to lock in multiyear contracts for Belle Ayr mine’s coal.
    Where’s Fast Eddie when we need him?

    • aaaa says:

      more like, they’re switching to natural gas. What % are wind and solar at now? I know the shillforce at the other PO site are expecting full renewable and EV anytime now

    • Kowalainen says:

      Once the natgas bonanza is over, yes you guessed it right. Back to basics. Inevitably we’ll revert back to:


      Then as those deposits depletes we’ll switch right back to


      Once all peat bogs are dug up and properly turned into stuff we don’t need, bought with money we don’t have, then you’ll see; we’ll chuck in anything, including our hopes, delusions and dreams of a better tomorrow:


      At that time, there will be zero solar panels and windmills. Just a plenty of despair.

      • I am not convinced it is this easy. The easy-to-get coal has mostly been used, except that that is too far from population centers to make any sense to extract. I know there is coal in Alaska of this type. There may also be coal in other places, such as Russia or Canada of Australia. If there is enough global warming, it may once again be near population centers. But as long as it is too far away, the effort/cost to transport it becomes too great to make sense.

        Peat moss is probably this way as well.

  2. milan says:

    drones are a super weapon better than any jet or army. One need only go watch the trailer for the movie Angel Has Fallen to see the truth of this.

    The houthi’s don’t need no Iranian to teach them just watch Hollywood

    • aaaa says:

      Hopefully this will bring an end to a really stupid war. USA/EU/Russia/China should have a grand sit-down with all of the middle east and iron out some end of hostilities across the entire region, from Israel/Palestine to Afghanistan. It’s ridiculous to play stupid coldwar games in a region that’s so essential to the continued survival of modern civilization

    • Chrome Mags says:

      Yeah, there’s a lot that can be done with drones. Drones are getting more capable and smaller. That’s a bad combination because things that are small are harder to see to defend against. Can radar even pick up a small drone?

      This may be a good time for the Saudi’s to strike a deal to end the fighting.

      • Robert Firth says:

        Ah, another bit of my research! No, small drones cannot be detected by ordinary radar. However specialist radar rigs can detect them, but cannot tell the difference between a drone and a bird. The current plan (as yet unproven) is to rely on “machine intelligence” (What else? MI has all the promise of astrological charts or ouija boards)

        The countermeasure is to get the drone to behave like a bird, for which it only needs as much intelligence as one bird, while the radar needs the intelligence to pick ten drones out of a thousand birds, and do so before the drones get too close to be safely destroyed.

        • Kowalainen says:

          CIWS radars and IR sensors can detect incoming artillery shells and other munitions through their infrared signature, material reflectivity and diffraction patterns as well behavior in the air.

          Extending defense capability, however, isn’t cheap.

        • Those are excellent points about the difficulty of getting radar to work at picking out drones from birds, at a distance.

          • Kowalainen says:

            Not much birds in the Saudi desert. And how are anyone going to get birds to fly directly over critical infrastructure at the correct time.

            Modern CIWS radars and IR sensors can easily target and shoot down a few drones. However in a coordinated attack from multiple directions at once… Not much hope there. Unless cheap guided missiles are used in a massive barrage against the swarm.

            The Houthis are using guided missiles against Saudi drones:

            • Robert Firth says:

              “Not much birds in the Saudi desert.”

              Not so: Arabia is on the flight path of many migratory birds. All you have to do is prep the drones for flight, and wait.

    • Kowalainen says:

      The gear can basically be bought at a hobbyist store and shipped to some shady entity in Turkey, then loaded up on a shitty old Toyota pickup truck driven down through the desert. And once the gas runs out. Do like the Vietnamese, haul it on animals and carry it to some shack with a solar panel as roof, equipped with the right know-how, a computer, multimeter, superglue, balsa wood, soldering iron, a few meters of electrical wire and the right motivation.

      Kaboom ensues. It’s a crazy world.

      • milan says:

        @ Kowalainen:

        From the website Lawfare….https://www.lawfareblog.com/micro-drones-test-successful

        In one of the most significant tests of autonomous systems under development by the Department of Defense, the Strategic Capabilities Office, partnering with Naval Air Systems Command, successfully demonstrated one of the world’s largest micro-drone swarms at China Lake, California. The test, conducted in October 2016 and documented on Sunday’s CBS News program “60 Minutes”, consisted of 103 Perdix drones launched from three F/A-18 Super Hornets. The micro-drones demonstrated advanced swarm behaviors such as collective decision-making, adaptive formation flying, and self-healing.

        Now I guess we know where that scene in the Hollywood movie Angel Has Fallen came from.

        • Robert Firth says:

          Not that hard. All the drones need is chirp sonar and the intelligence of a bat. After all, the bats have been using this technology for over 100 million years and are pretty good at it. So, defenders, is it a swarm of bats, or is it kaboom in motion?

          And I wouldn’t call 103 drones a “swarm”. A proper batty swarm can have over 100,000 members.

          • Kowalainen says:

            Problem is the range for the micro drones and to carry enough explosive power that they can penetrate through perimeter defenses such as simple nets and fences, and if they manage to do so, carry enough explosive power to cause enough destruction.

            The micro drones also need miniaturized navigation and targeting systems to hit relevant infrastructure. Slamming the drone on the pavement or bury it in a sand dune achieves nothing. Besides, the intelligence of a bat is not exactly trivial, however that might seem for a human observer.

            Rudimentary celestial navigation and cheap MEMS based IMU’s in combination with CMOS cameras, image recognition algorithms and a drone with a weight of +10 kg powered by a fossil burner having a range in excess of 1500km can wreck a substantial amount of havoc crippling half of the “victim” production capacity, as proven by the recent events.

  3. interguru says:

    Bin Laden was a student of history. He noted that great empires fell not from military defeat, but from debt. By that measure 9/11 was stunningly successful. The physical damage was small as measured on a national scale, but the overreaction was and is incredibly costly. First, our fool of a president used it as an excuse to launch an incredibly stupid unwarranted multi-trillion-dollar fiasco in Iraq. Then we launched a homeland security program whose spending is totally out of proportion to the danger. All this cascaded into Trump whose costs are to be measured.
    Bin Laden is looking down (or up? ) and smiling.

    • milan says:


      one mustn’t forget the overwhelming destruction of what Saddam did to Kuwait and all of the oil fields in his path. I figure in fact that the reason for 9/11 can be traced to the events of 1990. The Middle East is the powder keg that will one day consume us all. For more see here:


      and here:

      • Israel and Palestine both have high birth rates. In addition, there are idealistic young people coming to Israel, to volunteer to join the military. The population growth rate for Israel, (excluding Palestine) for 2019 is 1.6% according to the UN 2019 Population Estimates. For Palestine, the population growth rate for 2019 is estimated to be 2.4%.

        In comparison, the World population growth rate is 1.1% for 2019. The population growth rate for all of Africa is 2.5%, and the population growth rate of Iraq is 2.3%. So Palestine is up with these high population growth rates, but even Israel ex Palestinian population growth rate is high. These high population growth rates add to the Middle East problems. Not having water to go around makes the problems worse.

        • milan says:


          Yes, indeed and here in Canada I had the pleasure of running into an expat Palestinian and was floored by it. Asking too many questions of him but he didn’t want to talk much about his experiences nor how he managed to escape. Later I learned though through a buddy of his the wife pregnant with their seventh child. Yep, I guess so given where he comes from I replied back.
          Israel what a failed state, yep their groaning and crying for a messiah at any cost apparently is sorely weighing terribly I imagine on their leaders minds but especially their religious ones. Land, Oil and Water? Can you imagine?

          • It is very strange. Part of the issue seems to be a population competition. Israel has the greater population, but Palestine is catching up. Why do this, without enough oil, land, or water?

    • To believe a cave hiding community organizer in 3rd/4th world sh#hole can suddenly affect (switch off) laws of physics at Manhattan site is preposterous. But even adults tend to believe in various fairy-tales.. it’s partly a coping (defensive) mechanism as the insanity level out there is immense.. people just want to be good members of the herd..
      Domestication of humanoids.

    • Robert Firth says:

      A good student, then. Athens fell after her defeat at Syracuse, but not because of that defeat. Rather, because they could no longer collect the tribute from the Delian League, which is what had funded their armed forces.

      Rome entered her long decline when the silver mines of Iberia were exhausted, and she had to debase the coinage to pay the legions, which they rather did not like. The fatal blow was the Chrysarguron, when the government refused to accept its own coin in payment of taxes, but demanded gold and silver bullion.

      Spain of course became a great power thanks to the gold and silver plundered from South America, and collapsed when that ran out. And Britain was finished when she abandoned the Gold Standard during the Great War; it proved impossible effectively to return to it given the peace, because her debts were too great.

      • interguru says:

        More recently, the Soviet Union drowned in debt after oik prices collapsed in the ’80s. Their incursion into Afganistan accelerated the process, Does that ring a warning bell?

    • I suppose a person could call the war and the security program as ways to hire people who wouldn’t otherwise have jobs. I would call most or all of this “overhead” on the system, similar to the overhead we get from a hugely growing educational and medical system. If we actually have to collect taxes to pay for all of this, young people can’t afford to have homes or families.

  4. CTG says:

    It certainly feels that we are circling the drain faster and and faster – Brexit, Draghi’s ECB, China, slowing economy and now this attack. Kind of like “are we done yet on these”? It does seem that the propping up is getting more and more glaring.

    • Davidin100millionbilliontrillionzillionyears says:

      I agree with all that…

      it also feels that the more extreme the propping up gets, the more likely that it will fail to prevent global recession…

      those (black) drones may be little black swans flying high above…

      I previously was thinking that BAU could get to 2030, but there has been a severe deterioration this year…

      2020 sure looks like recession…

      even with that, the early 2020s could wobble along with quasi-BAU, as long as the big black swan of hyperinflation doesn’t appear…

      but decreasing net (surplus) energy never sleeps…

    • Xabier says:

      The global economy is getting to be like those very old 17th century slum houses in Victorian London which one can see in early photos: by the 1850’s they were all props and iron ties holding together rotting timbers and plaster, with floors and roofs at crazy angles – but guess what, desperate people were happy to live in them packed in like sardines, they had no choice at all. We are the slum tenants.

      I have to say, there’s a palpable accelerationnow in the decay of markets and industries, and the desperate blatancy of the measures being taken is ever more apparent.

      Well, may those props hold!

  5. Davidin100millionbilliontrillionzillionyears says:

    hyperdeflation… (spellcheck doesn’t think it’s a real word)…


    I thought of that word…

    has it ever been a real thing anywhere?

    specifically, what would it be?

    would it be as destructive as hyperinflation?

    economic decline because of decreasing energy supplies is a certainty, but the specific unfolding remains to be seen…

    it should be quite entertaining to watch…

    • Tim Groves says:

      In hyper-deflation, cash would be king, president and god-emperor. Stuff would be marked down cheaper by the day and then by the hour. Specifically, you would bring wheelbarrows to the store to cart away all the stuff you can by with your nickels and dimes. It would be like everyday is a fire-sale day. This wouldn’t last long because producers would have no financial motivation to produce. So the economy would grind to a halt or disappear down the plug hole and around the U-bend.

      • Davidin100millionbilliontrillionzillionyears says:

        it might be fun while it lasts…

      • Robert Firth says:

        Wonderful! I would leave the wheelbarrow behind and buy a Greek island. Then invite in to settle anyone who swore allegiance to me as God Emperor:

        “Re d’un placido mondo,
        D’una landa infinita,
        A un popola fecondo
        Voglio donar la vita.

        E l’ultimo bisogno
        Dell’esistenza mia.”

        Oh well, it didn’t work out for him, either.

  6. Sven Røgeberg says:

    Drastic falls in cost are powering another computer revolution
    The Internet of Things is the next big idea in computing
    «One way to understand the IoT says Martin Garner at CCS Insight, a firm of analysts, is by analogy with another world-changing innovation. Over the past century electricity has allowed consumers and businesses at least in the rich world, access to a fundamental, universally useful good—energy—when and where they needed it. The IoT aims to do for information what electricity did for energy.»

    • But our problem now is keeping the electricity on. These great hopes for saving information cheaply depend on keeping the electricity on. By the way, the electricity was off at our home (and 234 other homes in our area) for something like half an hour this afternoon. It was a nice, sunny Sunday afternoon, with no obvious construction going on.

  7. Harry McGibbs says:

    Attack on Saudi refinery could push prices up to $100 p/b, says Robert Rapier:


    Let’s hope the outage is not prolonged and there are no further attacks. Europe inc UK, China, Japan, Australia and EM nations like Argentina, Turkey and India need $100 oil right now like they need a hole in the head.

    Also, would the inflationary impulse from $100 oil discourage the Fed from cutting rates?

    • Harry McGibbs says:

      Although, Argentina perhaps not a good example, as they do produce some oil… and who knows? Perhaps higher prices might finally help them get their shale industry off the ground…

    • Sergey says:

      Less oil higher prices, who cares of affordability. We’ll see what happens on Monday. +5$ brent minimum i guess.

    • The WSJ is saying that oil production will be restored by Monday. The processing plant at Abiqaiq may be a bigger problem however.

      • Harry McGibbs says:

        FT has quite a good article:

        ““Today’s attack on the Abqaiq processing facility constitutes a paramount oil bullish, equity bearish, and global growth negative risk,” said Bob McNally of the Rapidan consultancy, who previously advised the White House under George W Bush.

        ““Such a brazen attack by an Iranian proxy on the crown jewel of the Kingdom of Saudi Arabia’s energy system will raise the overall geopolitical risk premium. “Due to its complexity, size, and customised components, repairing Abqaiq could take months, depending on the extent of the damage, though workarounds can offset some of the loss.””


      • Kowalainen says:

        Will the Saudis be able to properly defend against the next strike which undoubtedly already is in its execution stage?

        Let’s say this time a 100 drones targeting a few sites of crucial importance. Yes, I can almost feel the whiff of superglue, balsa wood, a hot solder iron and some plastic explosives from here.

        Yep, the royal family is a goner, unless something out of the extraordinary happens. Time will tell.

        • milan says:

          @ Kowalainen

          some serious info here:


          • Kowalainen says:


            Guerrilla warfare has become a hobbyist low-tech hardware with high-tech software. Gone are the Kalasjnikov‘s and suicide bomb belts of old.

            Now what are the Elders gonna do? Ban all micro controllers/FPGA’s, small size petrol/jet engines, plastics, cameras, 3D-printers, cheap ass Chinese CNC routers, PCB assembly pick and place machines, and balsa wood? I guess that’s quite intractable.

            Dumb ass dominators get to taste their own medicine flown and delivered straight up their collective a$$es.

            • Robert Firth says:

              … As did the flower of French chivalry at the Battle of Agincourt, courtesy of a lot of Welsh peasants armed with longbows. Power to the people, indeed.

        • psile says:

          The desalinisation plants are a very easy target.

          • Kowalainen says:

            The desalination plants are mostly pumps and water, possibly quite “easy” to fix. However, the fossil burning power plants providing the Saudi with electricity would be particularly effective. Imagine Riyadh completely dark with the power plants ablaze. What a spectacular sight for the city dwellers.

    • Right now WTI is reported $61.18, which is around +11.5%.

      I wouldn’t had my breath for $100 per barrel oil.

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

    Did someone yell SPIKE?
    U.S. readies emergency oil reserves in wake of Saudi attacks
    By Timothy Gardner
    ReutersSeptember 15, 2019, 12:42 AM ED

    WASHINGTON (Reuters) – The Trump administration said on Saturday it stood ready to tap U.S. emergency oil reserves if needed after attacks in Saudi Arabia shut more than half the crude output in the world’s largest oil exporter.

    Yemen’s Iran-aligned Houthis claimed responsibility for the attack that knocked out about 5 million barrels or 5% of global production, but U.S. Secretary of State Mike Pompeo put the blame squarely on Iran.

    The Strategic Petroleum Reserve, managed by the Energy Department, is held in heavily-guarded underground caverns on the Texas and Louisiana coasts. The world’s largest oil reserve currently holds nearly 645 million barrels of oil, according to the department website, consisting of 395 million barrels of heavy sour crude and 250 million barrels of light sweet oil.

    Former Secretary of State Henry Kissinger pushed for the creation of the SPR in 1975, after the Arab oil embargo spiked gasoline prices and damaged the U.S. economy.

    Old Henry was a smart Guy! Tricky Dickie said so

  9. I have problems in understanding how anything such as “global debt” can occur. In my limited understanding of finances there ca be no global debt as whatever is somebody’s debt has to be someone else’s asset, or?

    • Family “shop keeper” finances logic (or salaried person viewpoint) vs. global “synthetic” finance. Two very different levels, dissimilar playing fields, rules, and even participants..

      Might makes right, bigger (mightier) countries can eventually live beyond their means, say upto more than 1/3th of their entire allotted lifespan (even decades or more)..

      Plus obviously the undercurrent factor of multi generational private wealth, separate entity from the usual gov structures. In current form (hiding behind CBs) most notably present since late ~17th century.

      So those above are the basic three pillars of humanoid actors within the economy:

      – working bees
      – gov-mil structures
      – independent wealth/capital

    • Think of a debt as a promise to do something in the future. In most cases, it doesn’t have much behind it.

      For example, a company borrows money (or sells shares of stock, something that is close to equivalent) to build a huge machine. The value of the machine is expected to be more than just the sum of the cost of the raw material that go in to the machine. The value includes enough to pay the worker (in advance of the machine being completed). The machine is expected to generate enough cash flow to repay the debt with interest, and to pay necessary government taxes. If there is stock ownership involved, dividends are to be repaid from the machine.

      Yes, there is a machine on the other side of the transaction. And a bank may make the loan, using money it creates out of thin air. But there is a lot that can go wrong on the estimation process.

      Consider another kind of debt. A student takes out a loan to go to college. The student believes that with the loan he/she will be able to repay the debt with interest. In fact, the student finds that there are not really jobs that pay very well in his field of interest. He/she cannot, in fact, repay the debt.

      Of a government sets up a Social Security program and promises the workers retirement income. This is not considered a debt, generally, but the vast majority of people plan their lives as if they promised benefits will be paid. The government can only pay these benefits if the economy is functioning well enough.

      Of you buy a car, and take out a loan to pay for it. The car depreciates rapidly, as you leave the show room. You often owe far more than the car is worth.

      • Dennis L. says:

        There is a difference between liquidation value and return on capital value. If the vehicle serves a purpose of getting a person to and from a place of employment at a cost less than the income minus normal living expenses, the liquidation value is not relevant. What is relevant is the ability to hold the job with a vehicle. It seems it is more of a timing issue than an absolute amount issue. If the depreciation and the income are matched, there is no issue, all depreciation does not occur in the first minute the car is driven off the lot.

        SS might be thought of as a way to hold a county together. Were SS to stop paying perhaps the greatest downside would be the young seeing much less value of the government to themselves and have much less allegiance towards it. This may be happening now in the political split in this nation which watching media seems to be split as much along age lines as anything else.

        A small, closely knit group such as the Amish if scaled to nation size would provide little “skim” to the powers that be, they use so few government services that when they go away they notice much less than say a person living on welfare in a large city with little to no intergenerational connections.

        Accounting is all about estimates, you were(are) an actuary, estimates can be made fairly accurately and include variances. An honest and competent actuary/accountant will produce estimates both positive and negative which should balance, unfortunately, there is always someone who stands to benefit more immediately from one way than the other.

        Dennis L.

        • Estimates are based on sets of assumptions. The usual one is that the future will be a lot like the past. This is true sometimes, but not others. In a finite world, if a person assumes that the future will be like the past, at some point you will badly overestimate how good the future will be. I believe we have been doing this for a long time. This is why pension plans are in so much trouble.

          You say, “SS might be thought of as a way to hold a county together. Were SS to stop paying perhaps the greatest downside would be the young seeing much less value of the government to themselves and have much less allegiance towards it.”

          Social Security was implemented during the Depression to try to reduce the size of the workforce, so that young people would have more chance of getting a job. If you cut off all of today’s retirees and disabled from getting benefits, you will suddenly have a huge number more people competing for paying jobs, pushing young people out of the labor force, and perhaps lowering wage levels. With so many people hunting for jobs, why pay workers os much?

          Furthermore, the total “demand’ for goods and services will likely go down, because (total income from jobs) + (missing SS benefits) will buy a whole lot less. Commodity prices of all kinds will fall too low. Debt defaults are likely throughout the system. The economy is likely to crash.

          There is an awfully lot of “what do you want the estimate to be” hidden behind estimates. Once an estimate is in place, there is a lot of inertia against changing the estimate at all, especially in an unfavorable direction.

      • Robert Firth says:

        Thank you, Gail, once again. Please allow me to add my own thoughts.

        First, the huge machine. I saw this happen, at a startup company I worked for. We had grown a little (thanks to a second round of financing), and needed more computer power. But our software only ran on an obsolete mainframe, that sold for USD 600,000. Well, the CEO (a former professor) went to the most cautious, conservative bank in Pittsburgh, and persuaded them lend him the purchase price, with the big machine as security.

        Being cautious and conservative, they had no understanding of technology, and found out too late, after the inevitable bankruptcy, that the only value in the mainframe computer was the gold in its wiring.

        On student loans: I saw this also, living in the US from 1983 to 1997. Open the doors of opportunity for poor young women and men. But most of them could not take advantage of higher education, hence the proliferation of “fluff” degrees in feminist studies, race theory, postmodern criticism, and so on. And on graduation, they were stuck with the loans, and with no means to repay them.

        This was not a surprise to me, since Classical economics predicts exactly this outcome: that subsidies to consumers are always seized by producers, leaving the consumers worse off. And, of course, the Obama administration did exactly the same with health care.

        Social security and its multiple follies has already been analysed to death, so no comment.

        But car loans, yes: the system is rigged so that the value of the car is less than the value of the loan, at the moment you drive it off the lot. Which is why I never took out a car loan.

      • I assume your “global debt” is a sum of government, company and household debt? If so, even if banks create money, the sums owed must appear on somebody’s balance sheet, so I still don’t get how there can be a global debt?

        If debt was a successful way to create eceonomic growth, why are not all countries experiencing no or very limited growth, or even recession go for more debt? The two links give a quite different picture of the possibility of debt to create real growth, either for households or countries.

        • Kowalainen says:

          Everyone owes everyone else. It’s a means to:

          1. Shift old money to the pockets of new money. Thus the hatred for fiat currencies.

          2. Use it as tokens of exchange for accessing the enormous and ever increasing amount of industrial output.

          3. Most gold have been used up in industrial processes. Don’t expect there is a tractable way to go back to a gold backed currency.

          Everyone wants more stuff and money. Hence the ever increasing amounts of tokens of exchange, goods and services.

        • Global debt is the sum of government, company, and household debt. I believe that financial debt is also included, at least in some compilations. Governments can print money and use it to buy back some of their own debt in the market place to try to make the marketplace behave if there is really less debt in place.

          Governments are pretty much on a “cash” basis. They make a lot of promises, such as “We will bail out nuclear power plants” or “We will pay Social Security” but they do not reflect these promises on any kind of balance sheet. Governments overspend their income on a regular basis. The value of their bonds generally represents only past overspending, not planned future overspending of their income.

          I suppose households have balance sheets. Most young people would likely have negative equity, unless somehow they could set up an asset equal to the value of the expensive education that they paid for, but received little true value for.

          Businesses are the only ones that really put together balance sheets, and this can be iffy, as well. It is easy to claim that some device or property has value (say, the purchase price). Also, that some loan that a company has made will be paid back with interest. But if property prices decline, or if the loan is not really paid back, the equity that seems to be there, really isn’t. Today, derivatives are often paired with investments in foreign countries, with the expectation that if there is a big currency swing, the derivative will “fix” the big expected change in equity that will come from currency swings. In fact, derivatives have no reserves behind them. They may very well not be able to pay out, especially if there is a liquidity problem.

          A huge example of promises that are likely not really there are pension plans. They often were set up years ago, when interest rates were higher. People have planned their lives as if the monthly income of these pension plans will continue, but in fact, there often is very little in assets to back up these promises. There are governmental organizations that supposedly insure (some) pensions, but they are not advance funded. When a problem occurs, they have to ask for a government allocation to try to handle the problem.

          Similarly, the insurance on bank accounts is written by governmental organizations that have at most a tiny amount of advance funding. They have to go back to their government and ask for funding, whenever there is a string of major defaults. Since governments are on a cash basis, they don’t accrue for all of the expected cost of these payments.

          The smoke and mirrors goes on.

    • Robert Firth says:

      Gunnar, Classical economics says you are correct. Every troy ounce of gold lent out is a troy ounce previously saved. But that is a system called “100% reserve banking”, in which the money lenders lend out only what they have in their coffers. Pioneered by the Knights Templar, incidentally.

      Today we have “fractional reserve banking” where the banks lend more money than they have. So you save XAU1 at 3% interest, but they then lend XAU10 at 4% interest, and make out like bandits. Until the debts are not repaid, upon which … well we saw that happen, didn’t we? The State steals from everyone else, to repay the banks.

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