Recession Ahead: An Overview of Our Predicament

Many people have the impression that recessions come from financial missteps, such as the US subprime loan fiasco. If energy is involved at all, the problem comes from high oil prices as supply becomes inadequate to meet demand.

The real situation is different. We already seem to be on the road toward a new crisis; this crisis is likely to be much worse than the Great Recession of 2008-2009. This time, a major problem is likely to be energy prices that are too low for producers. Last time, a major problem was oil prices that were too high for consumers. The problem is different, but it is in some ways symmetric.

Last time, the United States seemed to be the epicenter; this time, my analysis indicates China is likely to be the epicenter. Last time, the world economy was coming off a high growth period; this time, the world economy is already somewhat depressed, even before hitting headwinds. These differences, plus the strange physics-based way that the world economy is organized, explain why the outcome seems likely to be worse this time than in 2008-2009.

I recently explained what I see as happening in a presentation for actuaries: Recession Likely: Expect a Bend in Trend Lines. This post is based on this presentation, omitting the strictly insurance-related portions.

The big thing that the vast majority of people do not understand is how important energy is to the economy. Because of this issue, I started my presentation with this slide:

Slide 3

After an opportunity for discussion, I offered the explanation that the role of food for humans is very much parallel to the need for energy of various types for the world economy. Food provides people with the energy required if they are to have the ability to think, move and speak. Energy products of many kinds enable the activities that we associate with GDP. For example, energy consumption enables machinery to operate and goods to be transported.

Slide 4 – Larger image at this link.

Using data from Smil, as well as more recent BP data, we can estimate how fast energy consumption has been growing over a very long period–nearly 200 years. We can see that the highest energy consumption growth occurred in the 1961 to 1970 period; the second highest growth occurred in the 1951 to 1960 period. These are periods we associate with rapid GDP growth and prosperity.

On the next slide, I show the same data displayed in a different way.

Slide 5 – Larger image at this link.

On this slide, I make two changes in the way the data are displayed:

  1. The increases in energy consumption are split into two components: (a) energy used to support population growth and (b) all other, which I describe as energy used to support improvement in “living standards.”
  2. A different graphing approach is used.

Note that when population growth corresponds to the full amount of energy consumption growth (in other words, at times when there is no red area above the blue area), energy consumption per capita is flat. High growth in energy consumption per capita seems to correspond to rising living standards, as occurred in the 1950s and 1960s.

While I label the “all other” category as if it is simply changes in living standards, there are other components, as well. One breakdown might be the following:

  1. True improvement in living standards.
  2. Additional energy investments required to offset diminishing returns.
  3. Increasing use of energy for overhead items that don’t get back to individuals, such as energy used to fight pollution or to allow globalization.
  4. Efficiency improvements allowing available energy to be more productive.

Efficiency improvements (Item 4) will allow more energy to be available for improvement in living standards, while Items 2 and 3 in the above list act in the opposite direction. We do not know to what extent these items really offset each other. Thus, “All other” = “Improvement in Living Standards” is only a rough approximation.

Slide 6 – Larger image at this link.

We can see from Slide 6 that whenever there is no red area above the blue area (flat living standards or flat energy per capita), adverse events seem to happen.

For example, the US Civil War (1861-1865) came at a time of low energy consumption growth. The Great Depression of the 1930s came during another period of low energy consumption per capita growth. World War I came at the beginning of this period, and World War II came at the end. The collapse of the central government of the Soviet Union in 1991 ushered in a decade of low world energy consumption growth, in part because of the loss of the central currency of the Soviet Union.

The “China Coal” note at the end pertains to the way that China and its coal supply has helped pull the world economy forward since 2001. This benefit seems to be already declining.

Slide 7 – Larger image at this link.

Slide 7 shows China’s energy production by fuel. Coal production (in red) soared after China was added to the World Trade Organization in December 2001. Beginning about 2012, China’s coal production began to plateau. Depleting mines and low prices for coal have kept production flat. Imports can be used as substitutes, to some extent, but it is difficult to keep costs low enough and provide adequate total supply.

With the loss of growth in China’s coal production, its economy has had to cut back. Each year, we read about coal mine closures and miners needing to find new jobs. We know that China discontinued its paper and plastic recycling business as of January 1, 2018. China has also been cutting back on solar subsidies, leading to fewer jobs installing solar panels. All of these types of changes reduce the number of people who can afford to buy high-priced goods, such as new homes, vehicles and smart phones.

Slide 8 – Larger image at this link.

It is becoming increasingly clear that China is being forced to cut back on heavy industrialization because of its coal difficulties. Slide 8 shows automobile purchases for six large economies. China is by far the largest of these economies in terms of auto sales. China’s auto sales began to slide in 2018 and are sliding further in 2019 (about -11%).

If we look back at the time of the 2008-2009 recession, we see that auto sales of the US dropped precipitously. The United States was the country that led the world into recession. The inability of US citizens to buy cars was a sign that something was seriously wrong. Now we are seeing a similar pattern in China.

China has reported that its GDP growth rate has been slightly lower during 2019, but we really don’t know how much lower. The amounts it publishes are too “smooth” to be believed. The actual GDP growth rate is believed to be lower than the recently reported 6.0%, but no one knows by precisely how much.

Figure 8b – CNBC Chart of changes in auto sales by country, based on data through October 2019. (Not part of original presentation.) Source

Figure 8b gives a little more information about recent car sales by country. We can see from this chart that based on data through October 2019, world automobile sales are expected to fall by about the same percentage (3%) in 2019 as during the recession year of 2008. I find this disturbing.

We can also see the huge impact that China has had on keeping world private passenger auto sales rising. The world economy looked like it was headed into recession in January, 2016, when world oil prices were very low, but a spike in China’s automobile sales at that time helped keep total world automobile sales rising and allowed world oil prices to rise from their low point.

In the next sections, I provide some background regarding this story.

Slide 9

Slide 10 – Larger image at this link.

Slide 10 shows the way that I visualize the world economy self-organizing and growing. The economy grows by adding new “layers” of businesses, products, consumers and laws. Unneeded products, such as buggy whips, are dropped from the bottom. Unprofitable businesses close. In some sense, the economy is hollow because of these deletions. It cannot easily go backward because, for example, the support services for widespread use of transport using horses are lacking.

Energy is used to operate all aspects of the system. One part of the system is a self-organizing financial system that helps decide, through wage levels, who gets the benefit of the goods and services that are made. This financial system includes self-organizing interest rates and self-organizing commodity prices.

The most important connection within the economy is the one I show at the center as “Consumers = Employees.” Consumers are very dependent on their wages as employees. If the economy is to continue to operate, workers must receive high enough wages to purchase the goods and services the economy produces. Even the lower-paid workers need to be able to afford food, housing and transportation, or the economy will tend to collapse.

Slide 11

When we look back through the history on Slides 4, 5 and 6, we see that the growth of energy consumption is very important in how economies operate. The theories of Ilya Prigogine explain why this is the case; when adequate flows of energy are available, self-organizing systems are able to grow.

Few economists today include energy consumption in their models, however. Economic theory has grown over time in its own “ivory tower.” Like other academic subjects, it depends on early theories and the process of peer review. The views expressed must also be pleasing to those in power, who would like everyone to believe that politicians, rather than the laws of physics, are in charge.

Slide 12

There are many types of self-organizing systems that grow. They all, directly or indirectly, require energy. Plants and animals of all types are self-organizing systems that grow. Hurricanes grow using the energy that they get from warm water.

Governments grow from the tax revenue that they are able to collect; they use the revenue to buy energy products such as electricity to operate governmental offices, oil to build roads and operate police cars, and natural gas to heat buildings.

The Internet grows through the revenue collected to provide its services. The Internet uses revenue to buy computers (made with energy products) and electricity to operate those computers.

Slice 13

Nearly all 0f the energy we use is hidden. For example, modern food production is very much dependent on energy consumption. Agricultural machines are made using energy products. Soil amendments, including organic soil amendments, are transported using fossil fuel energy. Refrigeration is possible through the use of energy. Hybrid seeds are only possible through energy consumption. Planting seeds by digging with a stick would only use human energy, but such a process would be terribly inefficient.

Slide 14

Slide 15

Most of us can easily recognize today’s goods and services, such as those listed.

Slide 16

Promises of future goods and services act like promises of future energy supplies. This happens because creating goods and services that people can actually use requires energy supplies of the appropriate type.

When people get cash or a check, they expect to use it to buy goods and services. Creating these goods and services requires energy consumption. If there is no energy of the right type available, the goods and services won’t be available to fulfill the promises.

Slide 17 – Larger image at this link.

Promises of future goods and services tend to grow faster than actual goods and services because it is these promises that, in some sense, “pull the economy along.” For example, if a young person gets a loan, (s)he can often buy a new car. The fact that a new car is being purchased leads to more jobs in the supply line leading up to new car production. Or, if a business takes out a loan or sells shares of stock, it can use the proceeds to hire employees. It is these growing wages that keep the system operating.

As long as the economy is growing rapidly, the mismatch between growing debt and actual output doesn’t become apparent. As the economy slows, some workers find themselves working fewer hours. Some businesses become less profitable and lay off workers to try to restore profitability. The catch is, with fewer workers, the economy slows even more. It usually takes more debt, at lower interest rates, to get out of such an economic slowdown.

Slide 18

Slide 19

There is a lot of confusion about prices. “Demand” is what people, through their wages and debt, can afford. As economists tell us, price depends on supply and demand.

In the short term, prices tend to bounce around a lot. The short term buyers of oil are oil refineries. They need to keep their employees busy. If they see a shortage of oil, they may bid up the price of oil to allow their workers to continue to be employed.

Over the longer term, prices of all energy products tend to depend on consumers’ ability to afford finished products, like cars, homes and cell phones. Producing these objects and shipping them takes energy. They also use energy as they operate.

Slide 20 – Larger image at this link.

The various energy prices shown here are simply a few of the many, many energy prices that we see around the world. Strangely enough, prices of all energy products tend to fluctuate together, over the longer term. Prices depend on affordability of end products, such as cars, homes, computers, food and clothing. Our problem since about 2012 has been lack of affordability of end products.

The primary way of raising affordability is by increasing productivity. Increased productivity is made possible by increasingly leveraging human labor with devices that are built with energy and are operated using energy. For example, a worker with a ditch digging machine is much more productive than a ditch digger with only a shovel. An analyst is more productive with a computer and Internet access than with only pencil and paper.

With higher productivity, more goods are produced in total. As long as not too much of this productive output is skimmed off the top (by governments, or by business hierarchy, or to pay for the devices and their fuel), it is possible for each worker to afford more goods and services, raising total demand.

An alternative way of raising affordability is by adding more debt at ever-lower interest rates. This approach tends to make goods such as cars, homes, and factories appear more affordable because their monthly payments are lower. This added-debt approach only works as long as the economy is growing quickly enough. If the economy slows too much, the added debt leads to financial crashes of many types.

Slide 21

Slide 22

Many people think that they know the amount of oil that can be extracted based on the current technology and the assumption that prices will eventually rise high enough to extract all of the fossil fuels that seem to be available. For example, the International Energy Agency has prepared reports in which it shows expected oil availability if oil prices rise to $300 per barrel.

The catch is that even if oil prices can bounce high, it is not clear that they can stay very high. The current price of oil is only in the $55 to $65 per barrel range. A price of $300 per barrel will allow oil extraction using very advanced technology. We don’t have any evidence that oil prices can stay this high because demand comes primarily from wages. Prices cannot stay high without adequate support from wage levels.

Of course, the issue is not just oil prices staying sufficiently high. Natural gas, coal, uranium and electricity prices all have difficulty rising high enough and staying high enough. Commodity prices such as copper and steel have the same issue.

Slide 23

There are many people who say, “Of course, oil prices will rise. Oil is a necessity.” They forget that it is really a two way tug of war between producers getting a high enough price to be profitable and consumers getting a low enough price to be affordable. There will be a winner and a loser.

People also forget that most commodity use is hidden. We see the fuel we buy for our personal vehicles, but there are a huge quantity of oil products required for shipping goods, paving roads, growing food, and for many other uses that we are not aware of. While we might be able to pay a little more to fill our gasoline tank, most of us would not be able to simultaneously pay more for food, transported goods of all kinds and road maintenance.

Slide 24 – Larger image at this link.

Economists often assume that if energy prices rise, wages will rise, as well. If we look at the data historically, however, it doesn’t work that way at all. What happens is the opposite: average wages tend to rise as long as oil prices stay low. Once oil prices spike, average wages tend to flatten out.

The amounts shown on Slide 24 are average wages, computed by taking the total inflation-adjusted wages for the population in total and dividing by population. When oil prices spike, recession soon sets in. The reason why average wages fall is partly because more people become unemployed. Other workers find it necessary to accept lower-paying jobs.

Slide 25 – Larger image at this link.

Many people focus on the run-up in oil prices to July 2008. An equally important point is the fact that the world economy has not been able to maintain these high prices since July 2008. The general price trend has been downward. The cuts by OPEC have not had a material impact.

Slide 26

Citizens of the United States, Europe, and Japan are used to thinking of high energy prices as being a problem because they are from countries that require substantial imported energy to maintain their GDP. For example, Greece will sell fewer trips on its tour boats, if oil prices are high. This will have an adverse impact on employment and the ability to repay debt with interest.

If a country is an oil exporting country, low oil prices are an even worse problem. This happens because oil exporting countries tend to earn a large share of their revenue from taxes on the sale of oil. These taxes can be much higher if oil is selling for, say, $120 per barrel than if it is selling for $60 per barrel. These tax dollars are used to provide subsidies to offset the high cost of imported food. They are also used to build industry and infrastructure to provide employment to the population.

If oil prices are too low, oil exporting countries will tend to cut back on oil production. In fact, this has been happening for OPEC for the entire year of 2019.

Similar problems occur if commodity prices of any kind (coal, natural gas, uranium, steel, copper, etc.) stay too low for an extended period. Producers go bankrupt, or they stop production, or they pay their employees so poorly that the employees go on strike. Sometimes, they may even start rioting. Many of the riots around the world today are related to low commodity prices.

Slide 27

Slide 28 – Larger image at this link.

The world experienced spiking oil prices in the period leading up to mid-2008. These high prices caused a recession and much lower prices followed. The chart on Slide 28 gives a somewhat exaggerated view of what goes wrong with high oil prices.

If the price of oil suddenly spikes to two or three times its previous price, both the price of food and gasoline are likely to increase. This change tends to lead to a big shift in a family’s budget. Debt payments, such as for a home and car, are pretty much fixed, so the big increase in food and gasoline prices must be taken out of the budget earmarked for everything else. This leads to cutbacks in discretionary spending such as vacations, restaurant meals, and charitable contributions.

In a short time, there are layoffs in discretionary sectors. Those who are laid off are more prone to defaults on loan payments. The problem soon escalates to a recession, with high unemployment and low oil prices.

Slide 29

Strangely enough, central banks push back against high oil prices as well. They know that high oil prices lead to high food prices. Citizens of energy-importing countries will be unhappy with elected officials if oil and food prices rise. Thus, central banks tend to raise short-term interest rates, as soon as they become concerned about high oil and food prices.

The recession that follows will quickly bring food and energy prices back down. If food and energy prices fall, the low prices will be the problem of the energy producers. Oil exporters will find their tax revenue too low, but the high-price problem of oil importers will be gone.

Figure 29b- Slide from a different presentation, showing the trend in interest rates. Larger image at this link.

You will recall that the rapid energy consumption growth periods were 1961 to 1970 and 1951 to 1960. During these periods, the economy was growing almost too quickly. The Federal Reserve was able to keep raising interest rates, as a way of holding down economic growth. It was not until 1981 that the pattern changed from raising interest rates to falling interest rates.

Since 1981, the US Federal Reserve and other central banks have been reducing interest rates. Lowering interest rates and rising debt levels, as mentioned previously, makes goods appear more affordable because of lower monthly payments. The concern now is that interest rates are about as low as they can go. Central banks no longer have room to offset recessionary tendencies (because of slow growth in energy consumption) by lowering short-term interest rates.

Slide 30

Most people never consider the possibility of low energy prices leading to collapse. It looks to me like this is the danger facing us today. Let’s start by looking back at what happened in 1991.

Slide 31 – Larger image at this link.

When the central government of the Soviet Union collapsed in 1991, the individual republics making up the Soviet Union were left on their own to find new currencies and new trading partners. Satellite countries of the Soviet Union were affected as well. Slide 31 shows that the consumption of many types of resources dropped for many years for the whole area. The low point was not reached until 1998.

Slide 32 -Larger image at this link.

If we look back to see what had happened previously, the Soviet Union was an oil producer and exporter. When oil prices were high in the 1973 to 1980 period, the Soviet Union prospered. But then low prices came along, at least partly because the US Federal Reserve raised interest rates to almost 20% in the 1980-1981 period. (See Figure 29b.)

The long-term low oil prices, in some sense, indicated that the world economy was producing too much oil; some inefficient area(s) of production needed to leave. The Soviet Union may have been singled out by the self-organizing economy because it used energy products in a less efficient manner than other economies. Its adverse outcome may also have reflected the fact that its cost of production was higher, leaving less of the sale price for reinvestment and taxes.

Slide 33

The Soviet Union is an example of what can happen if oil prices stay too low for several years. The central government of such an economy can collapse.

Slide 34

When commodity prices are too low, the economies of countries exporting those commodities are stressed. This is why we see so many uprisings in commodity-producing countries right now. Iraq with its oil has been having protests. Chile, with its copper and lithium exports, has been seeing protests. South Africa with its exports of coal, precious metals and gems has been having riots. With some escalation, any of these low-price situations could lead to an overturned government.

Slide 35

Slide 36

In Slide 36, I give an example of two different kinds of ingredients in a cake:

  1. Ones that are substitutable: the flavoring, which can be vanilla, almond, or something else
  2. Ones that are not substitutable: the flour, which is the energy product

With too small a quantity of flour, all we can do is make a smaller cake. Perhaps we can substitute a different energy product, but electricity most certainly will not do! Some bacteria eat electricity, but humans do not. Substitutability is limited, even within energy products/carriers.

Economists make models focusing on the special case when a material is not essential for the economy. This gives a misleading impression. If they had looked back at what happened when energy supplies were low relative to population growth, as we saw on Slide 6, they could make much better models.

Slide 37

We seem to be sitting on the edge of some form of collapse for at least parts of the world economy, right now.

Without enough energy consumption growth, top-level organizations, such as the European Union, the United Nations and the World Trade Organization, are especially at risk of collapse.

Slide 38

Slide 39

One of our big problems today is excessive wage disparity. High-wage workers rarely have trouble being able to afford homes, cars, vacations, and air conditioning. It is non-elite workers, the ones who have not been able to find high-paying jobs, who have an affordability problem.

The wage disparity problem is an outgrowth of how the physics of the economy works. If there are not enough goods and services to go around, the physics of the economy effectively “freezes out” some of the workers. Under this arrangement, there will be some survivors even if there is not quite enough for everyone. In some sense, the “best adapted” are able to survive. If the inadequate supply of finished goods and services were spread around evenly, there might be no survivors at all.

Slide 41

The thing that is key is that workers need to be able to afford finished goods and services produced by the economy. If too large a share of wages goes to high paid workers, or to owners of robots, there is not enough left over for the “regular” employees.

Slide 42

Many workers have seen their jobs disappear as their employers moved production to another country where wages were lower. Or, jobs can remain, but the wages will fall from the low-wage competition.

Slide 43

US income disparity seems to be as great as it was in about 1930, at the time of the Great Depression.

Slide 44

Slide 45 -Larger image at this link.

If we look at historical world energy consumption by fuel, we observe that it has been rising the vast majority of the time. The little dip that we see about 2008-2009 occurred at the time of the Great Recession. It doesn’t take much of a cutback in energy consumption to cause a major problem.

Back at Slide 20, I remarked,

The primary way of raising affordability is by increasing productivity. Increased productivity is made possible by increasingly leveraging human labor with devices that are built with energy and are operated using energy.

The world economy requires growing energy supply, of suitable kinds, to operate. If the quantity of energy available is reduced, productivity is likely to nosedive. This is true even if the reduction is intentional and seems to be for a good cause, such as reducing CO2 emissions.

We seem to be heading for a contraction in energy supplies now because of continued low energy prices. Fossil fuels are, in some sense, leaving us, whether we like it or not. World coal production has been flat to falling since 2012. IPCC scenarios assume a very different  pattern: Fossil fuel use, especially coal, will grow indefinitely, presumably because of high prices and improved technology.

Many people are hoping that wind, solar, and hydroelectric will someday replace fossil fuels. I consider this highly unlikely because all three are made using fossil fuels. Furthermore, these “renewables” in total represented only 10% of world energy supply in 2018. The 10% is divided as follows: wind, 2%; solar, 1% and hydroelectric 7%.

Slide 46 – Larger image at this link.

There clearly is a correlation between GDP growth and energy consumption growth. China with its growing coal use was pulling the world economy along, especially in the 2002 to 2012 period. Recently, it has lost much of this ability.

In my opinion, Trump’s tariffs are not the cause of our current trade problems. Tariffs seem to be enacted whenever growth in energy consumption per capita is very low. Tariffs were enacted both immediately before the US Civil War and at the time of the Great Depression. The problem is that jobs that pay well indirectly require significant energy consumption. When growth in energy consumption per capita is low, it becomes impossible to find enough jobs that pay well for everyone. Tariffs are used in an attempt to keep jobs that pay well at home.

Slide 47

We don’t know quite what will happen. The closest analogy is the Great Depression of the 1930s. More financial problems seem likely. In fact, they could escalate quite quickly. More strikes, such as those currently going on in France, seem likely. The situation is likely to play out a little differently in various countries.

The physics of the situation seems to try to keep some parts of the system operating, if at all possible. But, as mentioned at Slide 10, the self-organizing system deletes parts of the economy that are no longer needed. We no longer have an economy that can operate with horse and buggy, for example. We can’t just “go backwards” to an economy of an earlier era.

Slide 48

We are already seeing changes in this direction. Hong Kong’s protests are in the news practically daily. Germany is experiencing job layoffs. We know that in an interconnected world, a recession that starts in one large country is likely to eventually affect much of the rest of the world.

Now we are in a waiting period, waiting to see what happens next. Major changes seem likely over the next five years, but they could happen much sooner.

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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638 Responses to Recession Ahead: An Overview of Our Predicament

  1. Harry McGibbs says:

    “China‘s new energy vehicle output fell 36.9% year on year to 110,000 units on November, continuing year-on-year declines posted each month since July…”

    • Harry McGibbs says:

      “China’s consumer prices rose at their fastest pace in almost eight years in November as food costs surged but producer prices declined for the fifth straight month, complicating policymakers’ efforts to boost demand as economic growth slows…

      “However, domestic demand stayed subdued as core inflation – which excludes food and energy prices – showed only modest pressure.”

    • There is a follows on effect from the big drop in China’s new energy vehicle output:

      S&P Global Platts most recently assessed battery grade lithium carbonate at Yuan 53,000/mt ($7,530/mt) last Friday, down Yuan 1,000/mt from the week before. Lithium hydroxide fell Yuan 1,000/mt over the same period to be assessed at Yuan 57,000/mt. Both assessments are on a delivered, duty paid China basis.

      Market sources said the operating rates of cathode materials producers were currently below 50% of capacity due to reduced orders from battery makers, and expected lithium chemicals prices had yet to hit bottom.

      No wonder we have riots in Chile.

  2. Herbie R Ficklestein says:

    And TIMES “Person of the Year……drumroll please….
    Greta Thunberg Is TIME’s 2019 Person of the Year
    We can’t just continue living as if there was no tomorrow, because there is a tomorrow,” she says, tugging on the sleeve of her blue sweatshirt. “That is all we are saying.
    And we. all can relax because Al Gore says…
    This moment does feel different,” former Vice President Al Gore, who won the Nobel Peace Prize for his decades of climate advocacy work, tells TIME. “Throughout history, many great morally based movements have gained traction at the very moment when young people decided to make that movement their cause
    “I want you to panic,” she told the annual convention of CEOs and world leaders at the World Economic Forum in Davos, Switzerland, in January. “I want you to feel the fear I feel every day. And then I want you to act.

    When the wheels fall off of BAU. Greta, then you will not only feel fear and panic but actually be in FEAR and a constant state of PANIC!

  3. Harry McGibbs says:

    “The productivity of American workers in the third quarter fell a bit less than previously reported, but it still marked the first contraction of productivity in almost four years. Nonfarm business sector labor productivity, a measure of economic output for each hour worked, fell 0.2 percent in the third quarter…”

    • Harry McGibbs says:

      “The [US] trucking “bloodbath” of 2019 is taking another remarkably dire turn as the year draws to a close. Indianapolis-based Celadon, a truckload carrier that grossed $1 billion as recently as 2015, filed for bankruptcy on Dec. 9. It’s poised to be the largest truckload bankruptcy in history…”

      • Harry McGibbs says:

        “Newsflash: The oil price is falling sharply, following a surprise rise in US crude stocks. US oil inventories rose by 822,000 barrels, defying expectations of a 2.8m drop. That suggests weaker demand for energy.”

        • I don’t think that the oil price is falling sharply. WTI is currently $58.74. I didn’t find where your link was from. The American Petroleum Institute puts out a report every Tuesday on expected oil inventories; the EIA puts out a report every Wednesday on actual oil inventories. The two never agree.

          The EIA reports that crude oil in storage is about level. Crude oil and petroleum products (combined) are up a lot, about 17 million barrels, which is equivalent to 2.4 million barrels per day of additional amounts in storage. Some of this may be seasonal–storage of propane before winter, for example.

          The thing that was low the week ending December 6, 2019 was “Product Supplied,” if the latest’s weeks report is to be believed. (Perhaps it still has Thanksgiving distortions in it.) Total Product supplied for the latest week is 18.4 million barrels per day, compared to an average of 21.2 million barrels per day for the previous five week. There was no dip at all over the Thanksgiving week, in the weekly data. This makes me think that some businesses gave people the entire Thanksgiving week off (most schools around here do that, for example). They did not report at all during Thanksgiving week, so this problem was missed. They make up for the shortfall this week.

          • Harry McGibbs says:

            It was just a newsflash on The Guardian’s live-feed for business that caught my eye. The words “weaker demand for energy” drew me in!

            • I think the American Petroleum Institute should stop making its estimates. They are rarely even close. They come only one day before the “real thing.” Many reporters look at them and try to deduce too much from them.

      • Robert Firth says:

        A tragic outcome for the truckers, whose livelihood depended on the company. Driving in the US, I found the truckers to be among the most courteous and careful people on the road, until NAFTA let the Mexican cowboys in.

        If Trump has any sense (a proposition I regard as unproven), he will invest in a scheme to retrain the truckers to produce some of the goods they used to transport. Yes, hard; yes, maybe Utopian: but it would be a clear win/win for both the truckers and their communities.

        • rilygtek says:

          Just wait until these bad boys hit the roads en masse.

          “Autonomous cars may be one thing, but with the usage of autonomous trucks the utilization of trucking and the cost structure will drastically change.
          This is because sixty-five percent of U.S.’s goods are transported with trucks and these US trucks carry more freight than rail, pipeline, water, and air combined. Operating costs would decline by about 45 percent, saving the US trucking industry around $85 to $125 billion with autonomous trucks on the road.”

          • The thing that is cut is wages. Without wages, demand falls lower for everything, including oil, gas, and coal. The system collapses.

          • Robert Firth says:

            Autonomous trucks seems like a very complicated and roundabout way to cut costs. How about we have guided trucks instead? Put a couple of metal rails on the road, set the trucks on bogies, and no automated guidance is needed. And maybe link a couple of dozen together, and have them pulled by one big engine at the front, which seems cheaper than separate engines on each truck.

            Funny that nobody has thought of this already.

            • DJ says:

              I think a first doable step would be to automate them from parking spot outside city to parking spot outside another city. And then have people driving the final miles.

            • rilygtek says:

              I think Elon Musk have the same sort of idea of using underground tracks for shuffling people around.

              It’s funny how it takes a genius to solve these previously unsolved challenges for transportation needs.

            • Musk is a tunnel vision genius

              ie–because he had a stroke of genius in creating paypal, he convinces himeslf that his cleverness is transferrable to any other project he chooses—eg interplanetary travel, for which end he hires clevere people who will happily burn through his loose change

              doesnt work like that

            • Harry McGibbs says:

              Joseph Tainter argues that, “Societies collapse when their investments in social complexity and their “energy subsidies” reach a point of diminishing marginal returns.” [Wiki].

              At that point, what look like solutions are in fact unhelpfully complex pseudo-solutions – Musk is the patron saint of those.

            • Tainter makes a good point. The energy subsidies come as much from the total quantity of energy available as anything else.

  4. Harry McGibbs says:

    “Tullow Oil has been plunged into crisis after it ousted its boss, slashed production forecasts and axed the dividend – sending shares crashing to a 20-year low…

    “It will trigger massive paper losses for thousands of retail investors, who hold around 15pc of Tullow’s stock between them.”

  5. Harry McGibbs says:

    “[In India] Consumption demand has fallen as disposable incomes have shrunk due to low growth.

    “The sales of domestic vehicles declined across all categories in India by 12.05% in November compared to last year’s figures. ”

    “India’s power demand fell 4.3% in November from a year ago, representing the fourth straight month of decline… potentially reflecting a worsening industrial slowdown which has stifled overall economic growth.”

    Coal’s use for power in India is set to shrink for the first time in at least 14 years as demand slows… Coal generation fell for a fourth month in November, the longest such streak in government data going back to 2005. That echoes a decline in consumption…”

    “Global rating agency Moody’s on Monday said pressure on Indian finance companies continues to build up, with some banks heavily exposed to non-bank credit providers, hinting that India’s NBFC crisis is far from over, even after a year since the troubles began when a major shadow bank IL&FS Group abruptly defaulted.”

  6. Davidin100millionbilliontrillionzillionyears says:

    the US is now an oil exporter… update…

    here’s the EIA data for September 2019 which shows the net 89k barrels per day of US exports of crude oil and petroleum products:

    lots of numbers but the top 2 lines give the story…

    line 2 shows the new record production of US crude at 12,463,000 per day…

    but then there is THIS:

    after adding in other hydrocarbon liquids, line 1 shows the US producing over 20 million barrels per day…


    importing 8,668,000 per day…

    for a MASSIVE total of about 29 MILLION barrels per day of petroleum products…

    8,757,000 per day were exported, giving the net exports at 87,000 per day…

    the US then “consumes” about 20 million barrels per day of refined petroleum products…


    • Davidin100millionbilliontrillionzillionyears says:

      20 million barrels x 42 gallons per barrel = 840 million gallons…

      so about 2.5 gallons per person per day…

  7. I spent decades as a bicycling bike-ped-transit Advocate, and finally gave up after the 2014 plunge in gas prices. Nobody is going to forgo driving with ~$2 gas. I read several books, e.g. The Long Emergency, Afterburn, The Long Descent,, etc, all suggesting imminent peak oil and that high barrel (and thus pump) prices would become a more permanent feature. Now, it turns out, we’re floating on what seems an ocean of oil and we’re stuck with record cheap gas probably for generations to come. So I really don’t believe all the hype anymore, and certainly aren’t planning my life by it. Sadly, we NEED oil scarcity to force the hand of alternatives; trip consolidation, biking, walking, transit use, and other non-petrol means. But it ain’t a happenin’: the latest IEA reports only show huge increases in oil production for years to come. Very discouraging indeed if you care about the environment & climate, quality of life, healthy communities, etc.

    • The problem is not the problem that the peak oilers imagined. The problem is that people cannot afford goods made with oil and other energy products. It sits around in a glut. The alternatives are more expensive. We can’t possibly afford them, either.

      I think that the reduced use of coal, relative to oil and gas, is part of the cost problem. It is the average cost that must be low enough. Coal is a very inexpensive fuel. Using less of it is a problem. Using more high cost renewables adds to the problem of the average cost of energy products being unaffordable.

      The stories peak oilers told us about what transitions might be possible don’t really make sense. Oil, gas, and coal are leaving us through low wages and thus low prices. We don’t have a way of fixing this.

      The jury is still out on climate change. The climate is changing, but there is essentially nothing we can do about it. Fortunately, or not so fortunately, the economy is likely to crash before the changing climate makes much more difference than it has to date. The self-organizing system will fix the climate, just like it fixes everything else. We sit around worrying about things that we can’t fix.

      • Rodster says:

        It took awhile and then some for me to understand the Peak Oil theory as being economics and not a supply issue. “Energy has become too expensive for the consumer and far too inexpensive for the energy producers”.

        But, but gas prices are really super low, so you’re wrong say the naysayers. Ah, but prices at the pump are super low because the average consumers are dealing with massive wage disparity, inflation etc. They can’t buy gas at the prices the energy producers need them at, which would be in the $6-8 a gallon and not have the global economy collapse like it did in 2008.

        So when fuel prices go up then consumers cut back because of higher transportation cost throughout the just in time network so food prices go up as well. That causes an oversupply of oil so prices work there way back down.

        • Rodster says:

          “Energy has become too expensive for the consumer and far too COSTLY for the energy producers”.

        • The problem is that we are dealing with a networked system. There are two modes of failure. Peak oilers imagined that there was only one failure mode. They could not see what really goes wrong.

      • Artleads says:

        “I think that the reduced use of coal, relative to oil and gas, is part of the cost problem. It is the average cost that must be low enough. Coal is a very inexpensive fuel. Using less of it is a problem. Using more high cost renewables adds to the problem of the average cost of energy products being unaffordable.” (Gail Tverberg)

        This is what I don’t think is clarified and ironed out NEARLY enough. Coal is not some polite aside that the naive like me can miss. It must be BOLDLY emphasized, over and over again.

        The fact that coal mining has been a macho sport where you butcher workers and land to see how much damage on them you can inflict is a huge problem with coal. Coal must be processed with sophistication and refinement. Same for other mining, but the ease and low cost of coal recommends it for major emphasis.

        Producing coal must go together with planning, reforestation, conservation, the end of real estate development as we know it…

        • Phil D says:

          I think in many places, like Germany, remediation must be done after a coal mine stops producing. Whether or not that remediation restores the land to its former state…I don’t know…your mileage may vary on that.
          One issue with coal that Gail missed is that there is a quality issue. High quality coal is mostly depleted and is being replaced with lower quality coal, at a similar price.
          Oil suffers from a corollary problem to the coal problem: the quality is more or less the same as it was 40 years ago but the cost of extracting it is rising rapidly. EROEI is falling.

          • Artleads says:

            I’ve thought that the prevailing types of remediation, when they DO occur, do so after the mining is done. This sequence of the event is most counterproductive. The mining is over. The incentive for the remediation is therefore small. It would seem better to start the remediation before mining even begins. Forests of trees need to be planted away from the center of things and toward site edges. Since mining tends to leave vast caverns behind, an industry of fill is needed to operate before and during mining to generate and organize the fill to go in those caverns. With that sequence, the planting of trees and preparation of the fill could bring more economic activity and value to the site.

      • Jonzo says:

        Gail, you come across as a very smart person, but you lose credibility when stating complete falsehoods like this “The jury is still out on climate change.”

        “The climate is changing, but there is essentially nothing we can do about it.” That is a true statement, but don’t mix up the two statements.

        Humans ARE the cause of Global Warming. END OF STORY. The collapse of the severely overextending human race will occur, in part, due to Global Warming, and the on-going “sixth mass extinction” which humans are causing.

        • Humans require the use of fossil fuels, or we die off as a species.

          Back, over one million years ago, humans evolved to require at least some cooked food as part of our diet. With cooked food, we could get along with smaller teeth, jaws, and gut. More of the food energy could go toward a bigger brain. For many years, humans (and pre-humans) could get enough energy from burning wood and other biomass that they did not require fossil fuels. They did, however, take biomass resources that other species would use, leading to the die-off of other species, long before fossil fuels.

          Read my post Supplemental Energy Puts Humans in Charge.

          Now, however, our population is so large that there is no possibility of using biomass alone for our needs. Wind and solar are fossil fuel extensions. They are expensive, when all costs are considered. They are not replacements for fossil fuels.

          Talking about giving up fossil fuels is like talking about giving up food. You are likely not to get a whole lot of takers. The fact that people need to eat is a big part of the problem.

          I consider all of the climate change hoopla to be sort of a new religion, sponsored by politicians. It is based on wishful thinking.

          • my theory about humans==food==and fire has always been this basic timeline:

            early hominids would have found partially cooked animals killed by random fires, and realised they tasted good

            when fire-making was discovered, cooking animals was a logical step

            other animals were always around, so hanging up uneaten food in caves was also logical

            fires would have thus produced smoked meat, giving long term preservation

            if fires were made in scooped earth hollows, some of those hollows would have been in clay riverbanks etc, often in the same place.

            over time, it would have been noticed that water would have been retained there because the clay would have been fired. It’s a simple step then to shaping clay to make primitive pots and firing it deliberately.

            You then have the two fundamental problems of long term survival solved–water storage and food preservation.

            • DB says:

              Excellent speculations. Probably impossible to evaluate in the archaeological record, but entirely plausible.

            • rilygtek says:

              There is a serious flaw in that reasoning. Animals generally run away from fires. Rarely will you find animals dead from forest fires or any other type of natural disaster. They sense it and bolt away in the opposite direction. And since humans can not digest raw meat, I doubt any proto humans would eat meat damaged from fire if they didn’t eat it raw anyway.

              We ate plants and fruits damaged from fire, because it is what our bodies are evolved to deal with and what we are used to eat early on in our history as a species.

              This obsession with meat as the reason why humans evolved large brains is flat out wrong. We learned how to cook the starches into digestible carbohydrates. Eating meat and fish is most likely an invention originating from people surviving in harsher climates.

            • i was suggesting two long term survival factors, (hence the ref to water storage)

              the third advance was tool making

              You need a food source that doesn’t run away—which means veg or shellfish

              there is strong evidence that hominids were shore-oriented for much of their development, but opening shellfish requires tool use,
              Men would be likely off hunting or whatever (and getting killed themselves) , while women looked after hungry kids.

              Which is why women are smarter at survival. And live longer.

              My suggestion is that women were the early toolmakers necessary to access high protein food resources

            • rilygtek says:

              Women also have generally better dexterity than men. Carrying firewood and edible roots back to base camp does not require fine motor skills.

              Humans are plant eaters. Eating meat isn’t what primates normally do, neither raw nor cooked.

              Hunting is a rather new invention for mankind. We were gatherers and wielders of fire eons before hunting, or more likely fishing, became the “new” thing during hardships of the ice ages.

            • DB says:

              Meat eating very likely is an old adaptation that predates the emergence of even proto-humans. Among the many pieces of evidence:
              * physiological dependence on nutrients that are difficult or impossible to get in sufficient amounts from plant sources (such as vitamin B12 and iodine)
              * our closest primate relatives, chimpanzees, also eat meat
              * evolution of human teeth, with earlier shapes even better suited to meat eating than shapes found in modern humans
              * extensive archaeological finds of animal bones and butchery at prehistoric sites going very far back in time

              Here’s another irony of our fossil fuel age: true and complete vegans must supplement their diets with products (such as vitamin B12 tablets) that can be manufactured only with fossil fuels and industrialization.

            • The reason the meat we eat has Vitamin B12 is because the animals were fed Vitamin B12 supplements!

              B12: Why it’s not just a vegan issue

              The vitamin B12 (also known as cobalamin) is vital for proper health.

              What you might not know is that B12 is produced by bacteria found in soil as well as in the guts of animals (including humans) – but in order for the bacteria to make B12 the soil needs to contain the mineral cobalt. The B12 produced within our guts is too far down our digestive system to be absorbed by our body but is excreted in our feces. Our closest relatives, gorillas, get their B12 from accidental eating of soil (and their own feces) containing B12 when naturally eating their plant-based diet.

              Due to declining soil quality from intensive over-farming making the soil deficient in cobalt, and because our vegetables are super-washed (because we would rather not eat soil/manure) vegans don’t get enough B12 without supplementation and fortification.

              Early humans received plenty of B12 from the good quality (cobalt-rich) soil that was yet to be intensively farmed and drained of nutrients, and because they drank dirty (“natural”) water from rivers which also contained B12 and B12 producing bacteria.
              . . .

              But most factory-farmed animals are kept indoors and never even see soil during their lifetimes, so would certainly be deficient without supplementation. These horrible artificial conditions make the “vegan diet is unnatural” argument seem somewhat ironic. In fact, around 95% of all B12 supplements manufactured are actually given to farmed animals.

            • DB says:

              Thank you, Gail. Good hygiene (not eating foods from contaminated soil) might account for humans needing to get vitamin B12 from other sources now.

              Gorillas and other primates eat their own feces, and not just accidentally. And many primate species sometimes eat meat as well as insects. None of these are practical options for vegans.

              I eat a vegetarian (mostly vegan) diet myself, but I recognize if industrial civilization collapsed, I’d eventually have to diversify my diet to the extent possible (if I survived). In most environments, it’s a challenge to get all of the necessary nutrients from locally available food sources. In such circumstances, those who write off a particularly rich source of nutrients, such as animals, put themselves at a disadvantage for health, survival, and reproduction. I’m not aware of any non-agricultural society that relied solely on plants for food before European contact, but perhaps I’m mistaken. It seems that vegetarian, and especially vegan, diets may only be possible in agricultural and industrial societies.

            • DJ says:

              Optimal Foraging Strategy tells me most hunter gatherers were eating meat and tubers/root vegetables, unless living in a niche where nuts or starchy fruits were available year round.

              Root vegetables having at most 800 kcal/kg and animal parts doubling that must have made the latter attractive.

            • It depends on how much effort was required to source animal food, and how often it could be accessed. Also, could it be used before it spoiled.

              We know that in most peasant societies in somewhat recent years, meat was a rare treat. We also know that with respect to longevity, societies that go light on meat have a very definite advantage. Our relatives in the animal kingdom eat some meat, but it only comprises a small percentage of their total calories.

              Optimal Foraging Strategy sounds like something someone came up with to justify a high-meat diet. Perhaps in response to a research grant from a meat-producer’s association?

            • to me it seems a matter of simple logistcs

              if you have a means to carry concentrated energy in the form of , say—smoked meat, then a few pounds of it will let you move around for several days, to hunt and kill more meat-energy sources. Energy is not being expended to carry energy

              it isn’t possible to carry enough grain on your back to allow you to do this because it isnt
              concentrated enough. You use too much energy to carry energy. You must eat as you move around
              this is time consuming

              we follow the same principle now.

              If you travel by horse drawn coach (horses are grass fed,) then you can only go 15 miles before the horses are exhausted.

              If on the other hand you fill up a car with concentrated fuel, you can travel 500 miles.

              To me the principle seems exactly the same, and starts to explain how humankind expanded across the world—not a complete explanation of course, but a big part of the jigsaw

            • For hunter-gatherers on the move, meat (including fish and worms) is optimal. It is light to carry. Meat is nearly always safe to eat, while unfamiliar plants may be poisonous. Meat helps build up the size of a person, so that they have more ability to tackle prey. I expect that fish and worms dominated the meat supply.

              For hunter-gatherers in one general location, I expect that a diet of primarily plant foods is optimal. It doesn’t fight back. It is filled with vitamins, minerals, and fiber that the human body requires. (This, by itself, may make a meat-based diet problematic.) It is often in plentiful supply. Root vegetables, and (grains at a later date) provide lots of calories. Grains can be stored, making settled life possible. Plant food often requires cooking to get enough calories out, however, so its total energy cost includes both the gathering of the food and its cooking. In some cases, grains require other processes as well. This was one of the reasons that slave labor became necessary/desirable, if early cultures could figure out a way to obtain slaves.

            • DJ says:


              The part of humans liking animal meat because of caloric density is homemade. I think most can’t imagine how HARD it is to eat 3-4 kg of potatoes or similar each day.

            • rilygtek says:

              Typical cart before the horse reasoning.

              It is totally pointless to carry food when you can wield fire and own a fishing rod, bow and arrow and on top of that can easily survive on a plant-based diet.

              We are not talking a out happy campers out in nature here needing to carry food with them because they are incompetent survivors.

            • had you digested my comment, instead of over-reacting you would have accepted that i said it was only part of the human jigsaw

              not all of it

            • DJ says:


              How norwegians not starved during wwii (but maybe mostly how we could starve norwegians today to save us from climate change)

            • Rationing seemed to produce positive health benefits in the UK, because it tended to lead to better health outcomes:

              Food rationing started in 1940 and finally ended in 1954. A system of food rationing to ensure fair distribution of available food. To ensure good health, the amounts of available foods to cover people’s nutrient needs were calculated by scientists and statisticians. The wartime food shortages forced people to adopt new eating patterns. Most people ate less meat, fat, eggs and sugar than they had eaten before, but people who had previously consumed a poor diet were able to increase their intake of protein and vitamins because they received the same ration as everybody else. Thus, many people consumed a better diet during wartime food rationing than before the war years and this had a marked effect on health outcomes; infant mortality rates declined, and the average age at which people died from natural causes increased.

              Perhaps the abundance of US food is part of the US’s health problem. Restaurants feel an obligation to serve ridiculously large portions. Packages of food in grocery store always seem to be overly large. COSTCO and other wholesale clubs are especially bad in this respect.

            • DJ says:

              Many, not all, HG have had one or a few staples, and some of these have been seasonal, making preservation necessary, but maybe not “carrying food around”.

            • DJ says:

              Norway also had improved mortality rates. Their rations gave the right to buy certain amounts, so poor didnt get more of anything.

              Instead think less of what industrial agriculture could give and more of what could be gathered, grown by oneself, or fished.

              Indirect proof of how superior paleolithic food is 🙂

            • DJ says:

              Maybe most obvious less alcohol, less/no tobacco?

        • Phil D says:

          “Humans ARE the cause of Global Warming. END OF STORY.”

          This is a categorically false statement. Show me one, just ONE, experimental result that proves this. It doesn’t exist; the whole theory of AGW is based on models that are forced to model climate using one input variable (CO2) and the result is their poor forecasting performance.

          Most likely, temperatures are rising as a continuation of the planet’s emergence from the Little Ice Age in the mid to late 1800s.

          • DB says:

            Exactly right, Phil D. Both scientists and non-scientists often forget that there is only one way to determine causal relationships — through controlled experiments. Observational research, which is the basis for climatology and many other scientific fields, can help identify potential causes, but such evidence does not allow establishing them with confidence.

            • rilygtek says:

              Yes, and bloody good luck conducting a conclusive experiment on a system the size of a planet.

              We have absolutely no clue, but a reasonable assumption is that heavy industry for the last two centuries powered with fossil fuels certainly have an impact on the ecosystem, as for example with the measurable increase of CO2 levels leading to a greening of earth. But is that really a problem?

            • DB says:

              Yes, you’re right, rilygtek, that we have no clue, or at least no certainty, about the cause of warming (if there has even been warming, which also is a matter of debate) because we can’t do the experiments. For some topics, we are inherently condemned to this kind of uncertainty for precisely this reason. The unfortunate part is that both scientists and non-scientists often try to claim certainty when they cannot logically or empirically.

          • Robert Firth says:

            Phil, I hate to disagree with you, but the global warming models are not driven by CO2 as the input variable. They are driven by research grants. Science was a lot more honest when “scientists” were paid to cast horoscopes, and their real research was an unpaid obsession. As with Johannes Kepler, for instance.

            • DB says:

              Thank you, Robert. I wholeheartedly agree. As a practicing scientist, I believe that the grant funding system is at the core of essentially all problems in science today. It probably affects all fields. The rot runs deep.

            • A similar problem affects not-for-profits. They need to get contributions. Often, the workers for the not-for-profit volunteer to work for the company at a lower-than-standard wage because they feel strongly about a cause. They will leave, it the not-for-profit doesn’t perform as expected.

              The not-for-profit has a particular goal in mind. For example, “Post-carbon Institute” or “The Sierra Club.” Don’t look at these groups for unbiased analysis either. They sometimes get grants. Getting donations in some ways works the same as grant money, because those making donations want to make certain that whatever is published agrees with their view. The not-for-profit can only support research that is consistent with their selected view, whether or not it is right.

          • Wolfbay says:

            Listened to an interesting lecture by a solar scientist at an English university. It’s seems there’s a very significant solar flare minimum starting now and she predicts colder winters because of this. She suggests we stockpile food.. When asked if she thought humans would stockpile she replied “no but when it snows in June we’ll get the idea” !
            I guess we’ll know in the next couple of years if she is correct.

    • PeterEV says:

      That’s interesting about the IEA. Exxon Mobil has a been publishing graphs that show a peaking in liquid oil supply around the year 2040. They’ve been doing that for at least 4 years and have been consistent. This link takes you to the graph I’m referring to:
      The fracking in the Bakken and Eagle Ford are facing a decline and a cut off from Wall Street financing. The trillion barrels of Shale Oil in the high desert area of Colorado and Utah needs water, 2 to 3 barrels of water to produce a barrel of “oil” that can be sent through a pipeline. The Colorado River can’t supply enough water to bring us to “Energy Independence” levels (~5 MBOE/day) let alone the 18 MBOE we need each day. The potential is there but the likelihood is not.

      So is there a disconnect between the IEA and Exxon or are they both telling us the same thing and we are not interpreting it correctly?

  8. John says:

    Thanks for the thoughtful analysis which raises some interesting points. Yet, one has to view the global, financial deleveraging taking place as a relentless influence on rates of inflation. Without fundamental adjustments in the structural deficits of the public sector (domestically and among our trading partners) affording greater policy flexibility to the central banks (monetary policy), there will be no resurgence in economic growth. The short-term ‘sugar high’ accompanying the Trump administration tax cuts have failed to sustain markedly improved GDP. Our current economic condition does bring to mind an old, Northern New England quip: “We tend to get six months of winter and six months of rough sledding!”

    Again, thanks for the analysis!

  9. happtholidays says:

    There is something i dont understand. We talk about interest rates rising. This is our idea about interest rates. As a “investment” gets riskier interest rates rise to compensate that risk. The idea that markets determine interest rates. The federal reserve determines interest rates. There “tigtening” or “easing” renouncement is focused on by markets. So which is it?

    Technically the fed owns about 2.5 trillion of US debt. THis is just a guess but I think they sponsor much much larger ownership. Because the fed and the fractional; reserve banking system allows financial institutions to create money based on their “assets” i would argue that omost all treasuries are owned through large financial institutions that are defacto extensions of the fed. Looking at the following pie chart my admitted guess that the foreign and domestic investors slices are in largly owned by financial institutions chartered by the fed. Whether here or abroad chartered by the fed. My guess is that the fed would rather have its proxies own USA government debt commonly called investment. My guess is that the fact that they had to step in and take direct ownership of USA debt was a indicator of just how dire things were in 2008.

    Chinas holdings are important in my opinion. Why? a mere 1.2 trillion. IMO because these are bought with “money” created by productivity not fractional reserve banking.

    The other large slice of pie is social security fund held “non negotiable bonds” also known as debt. I wonder if and when social security benefits are reduced or eliminated what happens to those bonds? They are not paid when their term is finished? Social security fund is also going to be depleted in 30 years or so. Who will own that slice of the debt pie then? Ah yes “Foreign” and “domestic” “investors”.

    All of this speculation on my part ignores the large chunks held in various instruments “mutual funds” pensions ecetera. These are not directly held by institutions who can directly create money with the fractional reserve system. They are not under grandmas mattress eithor. My guess is that the amount of bonds held directly by individuals is very very low. I dont know a single individual who owns them and never have. Those that do own them through mutual funds. There are those who have followed the rules given to them by the financial pundits about asset classes and frankly so far they have done quite well by following them. Really one could argue that as the premier financial asset anyone with savings in banks owns US treasury bonds.

    All of this would seem quite insane. Luckily Gail has shared ideas about things that make a bit of sense about it. Debt is energy borrowed from the future. Infinite energy extraction allows borrowing a bit from it. Infinite energy extraction is what makes this just a practice to realize potential borrowed from a energy rich future not insanity.

    • Yes, the US became (or was selected) as the host entity for the global credit-debt recycling system (to simplify taking over UK’s role), the FED’s global system umbrella as known today, which has got its kernel root in 17th century CBs or perhaps older.

      The “problem” is that the US also co-evolved as the largest per capita energy consumer (by a large margin!), hence when the cost of getting and upgrading the access to the energy kept increasing ~40yrs ago, the easiest solution on hand was to offload energy intensive industries abroad, and eventually almost all production did, plus the all spectrum foreign intervention policies.

      However, this also paradoxically elevated “new” regional/local elites which up to a point (of reaching certain development status) had no interest in challenging the status quo of the “FED system”. Or acted/lucked out prematurely (e.g. Libya) would be now under protection shield of other powers.

      These giant tectonic plates of dissimilar aims (global capital class, regional rulers and semi-rich, impoverished middle classes joining precariat, color revolution/meddling/invasion induced migrant waves.. etc.), should all collide at some kaboom intersection point in the future. Some estimate it’s still decades/generations away, others forecast ~2025-35 time frame, or some even expect ~immediate impact.

      • Phil D says:

        ^ Post of the day here.

      • rilygtek says:


        The west exported the manufacturing industry elsewhere because all substantial growth was already a thing of the past. There is nothing as good for growth as people who work for improving their living standards and buys the product they create in the process.

        The energy shipping pathways of the world does not care where the FF’s are sourced nor where it is consumed. Tankers can reach the US as easily as China.

        The US / China dispute is ultimately an energy issue. Once the Chinese manufacturing industry becomes idle from a devaluation of the Yuan due to increasing energy costs, lack of access to high-tech and no dollars entering the economy, then Xi Jinping and his brothers in crime will be dispatched of.

        • Tim Groves says:


          Couldn’t you both be right?

          • rilygtek says:

            Can we agree to disagree. If not else to give some fuel and perspective to the discussion.

          • rilygtek is also correct as his concept is just limited historical time capsule (subset) of what I wrote about.. He doesn’t factor the “qualitative” macro change over the long term i.e. former global hegemonic powers being now in very advanced state of hollowed out structure with no inner content (lagging technology, institutions, diplomacy, culture, social interaction, and now even crumbling military capability vs 2nd / 3rd tier powers..) simply fast terminal decay at all levels..

            Nevertheless I could be wrong, and the emerging pack (China-India-Russia-..) and theri networks of influence will soonish disintegrate first (or in some global sync) allowing for yet another miraculous round of re-inventing itself for the West, low probability in my book though for this late inning.

            I’m simply more sequencing and triage aficionado..

    • You ask a lot of questions. Let me refer to what Investopedia has to say. Regarding how the economy adjusts interest rates, this is something that Investopedia writes:

      If a nation’s economy were a human body, then its heart would be the central bank. And just as the heart works to pump life-giving blood throughout the body, the central bank pumps money into the economy to keep it healthy and growing. Sometimes economies need less money, and sometimes they need more.
      . . .

      Central Banks Influence Interest Rates
      In most cases, a central bank cannot directly set interest rates for loans such as mortgages, auto loans, or personal loans. However, the central bank does have certain tools to push interest rates towards desired levels. For example, the central bank holds the key to the policy rate—this is the rate at which commercial banks get to borrow from the central bank (in the United States, this is called the federal discount rate). When banks get to borrow from the central bank at a lower rate, they pass these savings on by reducing the cost of loans to its customers. Lower interest rates tend to increase borrowing, and this means the quantity of money in circulation increases.

      The same article has sections on
      Central Banks Set the Reserve Requirement
      In my opinion, the reserve requirement acts in a similar way to the fractional reserving that you mention in your post. Central banks can keep changing the fraction requirement by changing the percentage of the reserve requirement. It is no longer called “fractional reserving,” even if the effect is pretty much the same.

      Central Banks Engage in Open Market Operations

      When a central bank is looking to increase the quantity of money in circulation, it purchases government securities from commercial banks and institutions. This frees up bank assets—they now have more cash to loan. This is a part of an expansionary or easing monetary policy which brings down the interest rate in the economy. The opposite is done in a case where money needs to taken out from the system. In the United States, the Federal Reserve uses open market operations to reach a targeted federal funds rate.

      Central Banks Introduce a Quantitative Easing Program

      In dire economic times, central banks can take open market operations a step further and institute a program of quantitative easing. Under quantitative easing, central banks create money and use it to buy up assets and securities such as government bonds. This money enters into the banking system as it is received as payment for the assets purchased by the central bank. The bank reserves swell up by that amount, which encourages banks to give out more loans, it further helps to lower long-term interest rates and encourage investment

      The way I would explain the situation is that interest rates are something that are self-organized between lenders and borrowers, depending on the “rules of the game.” What Central Banks have been doing since 1981 is to change the rules in such a way that interest rates have generally been falling. Before Quantitative Easing was implemented in 2008, the only interest rates that were affected were short term interest rates. You can see how 3-month interest rates move up and down on this chart. Whenever they rise, the inevitably lead to recession (gray bar) a while later.

      Recessions occur after the short term interest rates hit the long term interest rates, because banks can’t make money by lending out funds then. The problem is that the difference between what they obtain in interests on loans (which tend to be long-term) and the amounts that they pay on bank account deposits and other funds they have access to tends to be too small. Banks slow down on lending funds when short and long term interest rates meet, and not too long afterward, business activity slows down as well, because banks are unwilling to make loans, since they cannot do it profitably.

      Quantitative easing, started in 2008, also affects longer-term interest rates. The government buys up existing securities with money created out of thin air. This leaves less debt in the market place, and tends to reduce the interest rate needed to fund debt. I think of it as an interest rate subsidy that is being bought with the money created out of thin air.

  10. MG says:

    We have an oversupply of goods but the lack of the energy for everyday life: that is our current situation.

    The recession of the human species just continues.

    • Basically, businesses have needed to grow, so they have found ways to make their products ever-more costly. Some things (such as washing machines) also need to be replaced more frequently, because the new version of the product, while in theory is more efficient, is also more breakable.

      The poor citizen finds his/her wages are not high enough to cover the necessities of life.

  11. Harry McGibbs says:

    “First it was Japan. Then Europe. Now investors are scanning the world for the next outbreak of stagnant inflation and tumbling yields.

    ““Central banks have no choice but to be supportive of risk assets and asset prices until such time as fiscal expansion is possible,” said Nomura Asset Management’s Richard Hodges.”

    • Harry McGibbs says:

      “Interest rates are ultra-low in part because global investors are starved of “safe” assets that will still payout in the event of a sharp downturn or economic catastrophe. But can governments, in fact, provide that insurance for free if there is a risk that interest rates will rise in the next major systemic crisis?

      “A recent International Monetary Fund study of 55 countries over the last 200 years showed that although economic growth exceeded interest rates on government debt almost half the time, this was not a good predictor of whether the surveyed countries were safe from interest-rate spikes in a crisis.

      “Modern economies have many important uses for debt. But it is never a risk-free option for governments, which is why it should be taken on and managed wisely, even when rock-bottom borrowing costs prevail.”

      • This is a Kenneth Rogoff article. A paper of his with Carmen Reinhart points out that in their study of Eight Centuries of Financial Crises, “It is notable that the non-defaulters, by and large, are all hugely successful growth stories.”

        Having economic growth that exceeds the interest rate close to half the time is clearly not sufficient. Economies need long-term growth not to default.

        • John says:

          Here is an instructive study issued by the Center on Budget and Policy Priorities showing the key relationship between interest rates and economic growth. The demands imposed by burdensome debt-service in the years ahead does not bode well for any marked improvements in GDP growth. To the contrary, economic performance will continue to lag notwithstanding various attempts to manipulate aggregate demand through the combination of stimulative fiscal and monetary polices. While the prospects for a significant decline in economic growth may be averted in the near-term, prospects of sustaining levels of GDP typical of the post-War period appear increasingly dim notwithstanding incremental benefits flowing from technological gains. While I’m not offering “amen” to Prof. Johnson’s ‘Muddling Toward Frugality,’ I suspect that some adjustment in our standard of living expectations are probably in order.

          Thanks for citing the Rogoff/Reinhart article which offered some valuable context to my own understanding of our current circumstances. These two academics provided a constructive understanding to readers on the relentless influence of unsustainable levels of debt-service on economic growth. For their efforts, they were roundly attacked as “partisan ideologues” aiming to promote a conservative agenda. Alas, no good deed
          shall go unpunished!

    • I suppose Hodges means that if interest rates rise, Central Banks will have to do something to bring the interest rates back down, so that asset prices do not fall too badly. It could also mean bailouts for individual borrowers with problems.

      The article also seems to indicate that Nomura Asset Management made a lot of money in 2019 by betting the interest rates would become more negative.

  12. Harry McGibbs says:

    “The UK economy is stagnating , according to the last official check ahead of the election. Figures published by the Office for National Statistics showed gross domestic product (GDP) was flat with no growth in the three months to October.”

    • Harry McGibbs says:

      “A dairy farmer cannot plan for the future because the price paid for his milk has been held hostage by Brexit; a customs broker is cautiously preparing for a big expansion of business, but fearful if he makes the wrong call; a tech executive in London whose payroll relies on European Union workers wonders how she will fill her job vacancies; and two building cleaners, whose livelihood has been rocked by outsourcing, dread the loss of job protections built on rules from the Continent.”

      • Harry McGibbs says:

        “French unions are staging a second round of mass street demonstrations as the country entered its sixth day of a nationwide strike and transport standstill over proposed plans to change the pensions system.”

        • Harry McGibbs says:

          “Its main industry is in freefall. Its political system is descending into chaos. The banking system is in crisis, and consumer demand is stuck in the doldrums. Which country? It is, of course, Germany. With every week that passes there are more and more signs of a deep malaise in its economy.”

          • Germany is supposed to be the economic leader of the European Union. Automobiles are Germany’s biggest industry. It cannot withstand a contraction of the automobile industry.

            The author says,

            Germany will try and export its way out of trouble, and because as domestic demand falters, and with massive job cuts in the auto industry and elsewhere, imports are going to shrink as well. The result? An already massive trade surplus, which at more than 8pc of GDP is already one of the biggest ever recorded, is going to get even larger.

            That will provoke an inevitable retaliation from the United States and China, the main countries where German goods will be dumped. President Trump has already threatened to slap tariffs on its exports, and the Chinese may well try and find a way of easing German exporters out of its market as well. In truth, a painful economic decline in Germany may well be the trigger for a collapse in the global trading system.

            I expect that the author may be right. China has been trying to dump goods it cannot sell on the world market; Germany is likely to do the same.

      • Rodster says:

        The “New World Disorder”. It’s here and it’s spreading around the world. Two reasons for this, growing and massive wage inequalities and people want independence from their governments.

        The problem is that as things continue to get worse with the global economy and governments have to pay for all their obligations, they tend to crack down on dissent. The worse part is that this is all happening without the global economy, collapsing.

    • The only sector that is sort of holding up is the service sector. Of course, an economy cannot run on services alone. People need to eat and have transportation.

    • Name says:

      UK economy is living on current account deficit for many years. It means that abroad entities are financing existance of the UK.

      • Xabier says:

        It’s what Tim Morgan has called ‘ living on the kindness of strangers’. One can’t count on them to remain kind forever. The UK looks like an ever-poorer investment region.

        • “Services” seem to be what we add when we have surplus energy. It is the things that are directly from energy products that are most essential. Having practically a services-only country is not helpful in the long run, I am afraid.

  13. roc says:

    1°) Iran can produce much more oil
    2°) oil is also free as wind it is enough to recover it
    so the question would be: how long can we suffer before we die?

    • DJ says:

      Both oil and wind may be free, but you can still fight over the land.

      Neither is free to collect.

    • It takes a whole system to recover oil or wind. The cost of this system is amazingly high. It includes obtaining enough taxes for the government, for example. Most people miss this point. They assume that knowing something simple, such as “how much energy it will take to extract the energy” is sufficient to know the cost. This is only one piece of a very complex system. For example, if fresh water is becoming scarce in an oil exporting nation, the cost of desalinating sea water and then putting the correct minerals back in will be one part of the overall cost of keeping they system operating. This will be one component of the very high tax revenue required.

      • i1 says:

        One wonders if planting seeds using a stick isn’t more efficient.

      • doomphd says:

        our Costco sells Kona coffee beans for $20 US per pound. it has been grown in Kona, Hawaii, shipped to San Francisco where it is roasted and packaged, and then shipped back to Hawaii. i call it 5000 mile coffee. because of the economies of scale and our present-day transport system, the coffee can be sold well under the price of what local coffee producers can provide. high-end coffee grown on Oahu (no shipping necessary) sells for $60 US per pound. it does taste better.

  14. Harry McGibbs says:

    Another global recession forecast, although his analysis of course overlooks the energy part of the equation:

    ““We live in a world where we have been hit by waves of social unrest, populism, nationalism, asset bubbles, trade wars, currency wars — we have a chaotic environment,” economist Vikram Mansharamani said, adding that the root causes for all of these include oversupply in the field of technology and energy, and ageing of the world’s largest economies that prompt consumers to spend less.

    “When we put these together we have global deflationary pressures,” he said. “So in a world where there is not enough demand and too much supply, countries compete using currencies to boost exports, resulting in a winner-take-all market, inequality and social unrest.”

    “This is tailed by nationalism and populism, with people being led to assign blame, followed by protectionism and taxes on imports, Mansharamani said…

    ““The global economic uncertainty does not limit to just US-China, but ripple effects extend into US-Europe, Japan-Korea, which are paralysing corporate boardrooms of multinational companies as they are no longer investing the way they were…

    ““So when we put all these pieces together, it shows that in the next 24 months there is a high propensity or high probability that we will face the heat of a recession,” he said, adding that these signs, which usually come 12-18 months before we have a recession, show that the economy is within 36 months of a downturn.”

  15. kschleunes says:

    We either need to find a lot more cheap oil and gas (not likely) or we need to find a new source of cheap energy. It’s the only way to keep capitalism going. I think economic collapse will occur in the summer of 2020. After that, who knows.

  16. happtholidays says:

    Great article Gail!
    Enjoy it while it lasts!

  17. Jarvis says:

    Gail do you think there is a sweet spot for oil prices? High enough that oil producers can locate and develop new sources but not so high that we can avoid collapse ?

    • Rodster says:

      Her answer will probably be NO. Just look at what happens when oil breaks north of $65, the economy begins to slow down because consumers feel the pinch at the pump. That’s way below what the producers need just to break even.

      And don’t forget the problem is made much worse by the growing HUGE WAGE DISPARITY around the world. That’s why we are beginning to see so much civil unrest around the world.

    • I think the sweet spot for oil prices is long past. We need prices higher than $120 per barrel for the energy exporters to get enough tax revenue.

      Citizens of many countries are having trouble buying cars at current oil prices. The fact that governments are trying to demand ever-more-fuel-efficient cars, or electric cars, makes the situation even worse.

      Part of the problem, too, is feature creep. Originally, manufacturers built cars for transportation. Now, cars are entertainment systems on wheels. The heating system warms up the seat for you before you get in. Long ago, windows changed from the crank type to ones that roll down with the touch of a button long ago. Cars have gradually added better bumpers and many other safety features that the powers that be decided we need. But people, on their modest wages, can’t really afford these fancier cars. These changes are not considered part of inflation. They are part of car makers plan to make more money from selling fewer vehicles.

      This vehicle (auto-rickshaw) is similar to one I rode in India.

      It definitely does not have all of the features of US cars. I held onto the car frame for dear life as the vehicle drove down bumpy roads because there were too many of us in the vehicle, and there were not doors on the vehicle.

      • You are correct and as you mentioned previously, also the emission arrangements apart from added safeties and creature comforts elevated the price. A decade ago the cheapest (not imported) real car started at ~EUR9k that’s impossible today..

        But the picture meant as “a car” is not exactly fitting as this is three wheeler some sort of Italian Vespa or similar scooter clone from the ~1940-50s.. Nevertheless these cheap modes of transport basically divide almost scooter like consumption among several passengers, hence say result in ~1/10th fuel demand of US style ~3ton vehicle per person.

      • Xabier says:

        Such vehicles are a daily proof of ‘divine intervention’.

        Our experience in the coming decade is likely to be one of hanging on very tight as well….

  18. Fig 29B, Peak interest rates 1981

    Increasing interest rates in the 70s were in response to high inflation rates resulting from high oil prices (1st oil crisis 1973 -OPEC power after peak oil in the US) and (2nd oil crisis 1979 – peak oil in Iran)

    The 1980s drop in interest rates can be explained by the recession caused by the 1970s oil crises.

    Since 2000 interest rates have been strategically manipulated to keep the economy alive despite increasing oil prices. What was helpful was that China became the factory of cheap consumer goods, keeping inflation low.

    It would be interesting to see a FRED graph showing interest rates and inflation.

    And then we have the petro dollar debt mountain, another reason to keep interest rates low. Maybe that could be another FRED graph

    • Herbie R Ficklestein says:

      Saint Paul Volcker has gone to the printing press in the SKY…
      Has died….

      When Volcker ruled the Fed, ‘people thought they’d never buy a home again’
      PUBLISHED MON, DEC 9 201911:35 AM ESTUPDATED MON, DEC 9 2019
      Paul Volcker used super-high interest rates as a controversial way of subduing inflation, and he succeeded after two recessions.
      But interest rates for everything in the 1980s skyrocketed, including home mortgages, which rose into the high teens.
      In that era, it was common for sellers to help buyers pay for their homes by letting them assume their mortgages
      ….“What Volcker did was raise the fed funds rate to levels people never thought they would see. In 1981, the fed funds rate was consistently 20% or higher for roughly half the year, and at least on one day it was 22%,” McCarthy said. “He caused two recessions to get what he wanted. It took massive courage to do that.”

      Volcker was not without his critics in Washington and in the business world.

      “It was controversial. There were farmers and business executives out in front of the Fed picketing and complaining about interest rates,” Rupkey said. “Nobody wanted to see interest rates going higher. The way he got around it was the money supply target. They could say, ‘It was out of our hands … it was the fuel for additional inflation.’”

      “So when money supply grew faster than target, they drained reserves in the system and that effectively pushed up the fed funds rate to extremely high levels,” he said.

      Rupkey said Volcker’s legacy is still apparent after making a mark on the economy and Fed policy.

      “A tall tree has fallen in the forest,” he said. “It’s ironic that he cured the inflation problem and [Fed Chairman Jerome] Powell thinks he has a new problem. The struggle the Fed has now is with too-low inflation.”

      Former Fed Chairman Alan Greenspan on Monday called Volcker “the most effective chairman in the history of the Federal Reserve

      © 2019 CNBC LLC. All Rights Reserved. A Division of NBCUniversal

      Yes, the Federal Reserve are the Egyptian High Priests of Ancient times….along with with
      Lawyers and Bankers

    • Here is a chart comparing short term interest rates and inflation rates.

      We would expect the two to be highly correlated for two reasons:

      1. When a person or organization takes out a loan, the loan will be paid back in “dollars of the day.” The lender needs to be compensated for the loss of value that occurs during this period. So logically, the lender needs to receive an interest rate at least equal to the inflation rate. The interest rate should be somewhat above the inflation rate, to cover the default rise and the loss of the lender’s ability to invest the funds elsewhere.

      2. The reason that there is inflation is closely related to spikes in oil and food prices. Regulators of oil importing countries recognize that voters will be very unhappy if these costs rise enough to cause a recession. So they will raise interest rates, to try to squeeze back demand for construction projects and other big user of oil products.

      This is a chart, similar to the one shown above, showing the percentage change in total wages paid as a green line. This line will reflect additions to the labor force (more women working, for example) as well as increases in wages:

      Note the big increases in wages in the 1980 and prior period. This is when wage growth was being pumped up by true growth in productivity, as energy consumption per capita grew. Note the wide difference between the inflation rate and the growth in wages. Families were able to add cars and homes during this period, even with relatively high interest rates.

      After 1980, the growth in wages was mostly fueled by growth in debt. This might be viewed at least partly as recycled petroleum dollar debt. The gap between wage growth and inflation became smaller. This was true, even though the definition of inflation seems to have gradually changed so that it measured a given inflation rate lower. The inflation was achieved by “feature creep,” whether or not it was affordable by those buying the goods.

      Now, there is not much gap between wage growth and the CPI index. The fact that wage growth is low around the world is part of what holds down “demand” and thus inflation rates (and, of course, inflation rates are closely related to commodity prices, such as oil). Growing wage disparity is another factor holding down commodity prices.

  19. Janiel says:

    It is interesting to add to the theory of dissipative structures, the theory of maximum speed in the production of entropy, proposed by Rod Swenson.
    According to this theory, dissipative structures will have the maximum possible entropy production that circumstances allow.
    This theory prevents society (as a dissipative structure) from being able to make an orderly transition to lower energy consumption. We will devour all the energy we have at our fingertips at the maximum possible rate in compliance with the principle proposed by Swenson.

  20. Herbie R Ficklestein says:

    Don’t think that we will see much public policy going towards ….
    Any abrupt policy shifts risk severely disrupting current investment strategies, U.N.-backed Principles of Responsible Investing (PRI), a group representing investors with $86 trillion of assets under management, said in a report.
    “As the realities of climate change catch up, social pressure mounts, and low carbon solutions get cheaper, it’s highly improbable that governments will be allowed to let the world sleep-walk into greater rises in temperature without being compelled into forceful action sooner,” PRI Chief Executive Fiona Reynolds said.
    “This poses huge threats for assets and for the wider system.”
    Most exposed is the fossil fuel sector which could lose one third of its current value, the report said. Fossil fuels account for around two thirds of global greenhouse gas emissions.
    Coal firms could lose as much as 44% in value, while the world’s top oil and gas companies risk losing up to 31% of their current market share, according the report which forecasts oil demand peaking around 2027.
    The analysis showed that broad index-based funds such as the iShares MSCI ACWI ETF could lose up to 4.5% or $2.3 trillion in its value under the most extreme scenario.
    The shift would nevertheless also lead to winners.
    Auto makers heavily invested in electric vehicles and electric utility firms using low-carbon power could more than double their values, the report said.
    The report came out as world leaders meet in Madrid for the 2019 United Nations climate change conference, known as COP25.

    Ah, wishful thinking regarding electric cars and low carbon utilities….makes good press.

    So does this

    16-year-old activist Greta Thunberg made a second visit to the UN climate COP25 held in Madrid, on a day that focuses on “sustainable finance”.
    After a brief speech, she gave the floor to the other young climate activists from different parts of the world. “Their stories must be heard”, she said. Thunberg explained that the purpose of the event was to create a platform “to share the stories that needed to be shared”.
    The activist also mentioned the importance of listening to indigenous peoples because of their valuable knowledge about nature.
    Thunberg will attend later the high-level event promoted by UNICEF “Children and Young People, Against Climate Change,”. Former Chilean President Michelle Bachelet and Ireland’s former President Mary Robinson will also be present.
    The climate emergency “is not a future problem, it is something that is already affecting us, people are suffering and dying for it today”, said the Swede during her opening speech

    Too bad Gail isn’t addressing the Climate Summit….that would something!
    Thanks, Gail, for the write-up and keeping the discussion going.

    • Robert Firth says:

      Thank you, Herbie, for a compelling roundup of the latest bout of international insanity. So we now have to use less coal and oil to save the planet? No, no: we have to use more coal and oil to pad the balance sheets of the coal and oil companies, otherwise their value will plummet! So we have a choice: freeze while poor, or boil while rich.

      And enter “sustainable finance”. In the last analysis, all money is a promise to deliver goods of value; all goods of value can be produced only with energy. Therefore, without sustainable energy there can be no sustainable finance. Yes, they really should invite Gail to pop their balloons of hopium.

  21. Harry McGibbs says:

    “South Africa’s state power utility Eskom is one of the biggest challenges facing the country. Mess up Eskom, and you mess up the country. And it looks as though key players are doing just that…

    “What we see in Chile, where public anger has spilled out onto the streets, is what can be expected to emerge as ordinary South Africans experience the true implications of this failure to decisively resolve the crisis. are responsible for triggering a crisis that will be resolved on the streets.”

  22. stephen riley says:

    So basically the whole system regarding energy and economicgrowth is a huge ponzi scheme

    • Yes, unfortunately! In fact, I have used the term Ponzi Scheme myself to describe the problem. But I thought that talking to a group of people who had never run into this issue before, I should stay away from making the point quite this bluntly.

      • PD says:

        Are you sure that Ponzi is the right term? Isn’t it more like a pay-as-you-go plan – you use the resources available to you at the time they’re available to you, growing and shrinking what you use in line with how much of it you can afford?

        • No. Humans became adapted to using supplemental energy over one million years ago, when we learned to cook part of our food. We now are biologically adapted to requiring some cooked food in our diet. (Perhaps a blender might sort of replace some of this.) The availability of cooked food allowed our teeth, jaws, and gut to be smaller. It allowed our brain to be bigger. It allowed human population to grow and push out other populations, since hunter gatherer days. See my post, Supplemental Energy Puts Humans in Charge. The population of humans could grow as other populations shrank.

          The reason we need fossil fuels now is because there are so many of us. For a long time, we could get along with only wood and other biomass for fuel, by pushing other species out. Now there are so many of us that we have no choice but use fossil fuels or see our population drop dramatically. No one wants to mention this not so minor issue.

          • happtholidays says:

            Genetic ponzi adaptation.

          • Artleads says:

            Thanks. My personal response to this centers on building (which I’m convinced is the major driver of climate change). It is (albeit not entirely avoidable) vicious to build anything using any but discarded industrial materials. Not earth, not rocks, not wood. The things that go into landfills need to go into built structures.

            • Over the long term, discarded industrial materials will decline. Also, transportation of these discarded industrial materials will be a problem in many areas where building is needed. Then we will have to go back to using local materials, such as branches that have fallen from trees and sod. Nails will not be available, most likely.

            • Artleads says:

              I suppose that some massive change (which I can’t define) will necessitate a trend to reducing population within a modified socioeconomic system. I of course have only intuition to go on, but it seems the current system, unmodified, must end soon. I don’t sense that civilization (and industrial production and therefore industrial waste) will end at the same time. I expect there will be an overlap between the end of this exact version of the system and some sort of industrial production. The choice, it would appear, is whether we get a dystopia where capitalists make money off trash and just about kill the rest of us, bringing the system down…OR something more rational that allows for more equity and ability to endure.

    • ponzi schemes can only continue to function if the suckers at the bottom keep paying in more and more to support those at the top creaming off the profits

      I was taken to task the other day for saying bitcoin was a ponzi scheme

      • Let’s refine it a bit more.
        Actually such ponzies as ours need (apart from both extremes: owners of the scheme and the bottom suckers layer) a lot of the mid-upper level “suckers” functioning as pillars and conduits for daily public visibility reference point aka “wealth fountain illusions” as well. That’s why these people being targeted-placated by QE didn’t panic in full force after GFC_I, that was crucial. But even they (globally not in just one country) will be eventually triggered at some future next GFC_verXY event..

      • Robert Firth says:

        Oh no! At least Ponzi had willing investors, even if duped, greedy, and stupid. US Social Security is a Ponzi scheme the hapless workers are forced to join, just as That Thug FDR intended. And it was deliberately skewed to give the early retirees far more than they had contributed, to ensure it could be neither reformed nor repealed. He sowed the wind, but the present generation of workers will reap the whirlwind.

        It is said that the Devil was the first Whig. Maybe so, but FDR runs him close.

        • Right! And actuaries preside over this Ponzi Scheme. The actuaries are a slightly different variety than I am. They specialize in life insurance and pensions. I am from the branch (casualty) that specializes in other stuff. I happened to be working in fairly long-term risks with respect to medical malpractice and workers compensation. I figured out that the assumptions actuaries were making made no sense, before I left consulting. But I didn’t think I could write about the subject, as long as I worked for a company (now called Willis Towers Watson (WTW)) that does pension consulting among other things.

          On a slightly related topic, I recently figured out something about WTW’s own pension plan. It is not funded at all! I presume that WTW accrues for it on its balance sheet, if Ireland, where it is now domiciled, requires it. I figured this out because I could not make sense of the materials sent to me in the mail with respect to WTW’s funding; these implied the balance in one fund was going to zero, about now. I sent emails to a few retired actuaries who were higher-up in the organization than I was.

          One of them made an inquiry of current management to see exactly what was going on. They found out that separate pension funding, per se, had been discontinued some time ago. Existing balances are being run down to zero. Instead, the company makes payments out of current funds each year. As long as WTW is a going concern, pension funding will continue. If it ceases operating, perhaps (??) its US liabilities roll over to the Pension Benefit Guaranty Corporation (PBGC).

          But the PBGC is not set up to handle any big influx of pension claims. It charges pension plans a small amount for its services. It does not accrue for future claims. It needed to get funding from a congressional appropriation in 2019. It doesn’t really provide much of a guarantee, if there are widespread defaults.

          • Robert Firth says:

            Thank you, Gail, for a most interesting insider’s view. It is a great temptation for organisations to abandon the classical economics concept of a “sinking fund”, and move to pay as you go. Of course, it meant that if the company folds, you lose your job and your father loses his pension, so essentially the risk was transferred to the workers, past and present.

            The PBGC, by the way, is already in debt by over $50 billion, so we again see the absurd MMT system that organisations in debt are “guaranteed” by organisations with an order of magnitude more debt; a system that globalisation has made international. But who will bail out Planet Earth?

    • rilygtek says:

      Any a six-year old can understand the basic concept of basing infinite growth on a planet with finite resources is nothing else than an inevitable disaster in the making.

  23. Pingback: Recession Ahead: An Overview of Our Predicament –

  24. Jan says:

    If we agree that mass demonstrations, unclear democratic majorities, strong migration, civil war, and right populist as much as authoritarian governments are a sign of “dissatisfaction” then we have an alarming number of states with “dissatisfied” citizens. Countries that just come to my mind are: Poland, Hungary, Germany, Italy, Austria, France, Spain, United Kingdom, Belgium, Russia, White Russia, Ukraine, Serbia, Romania, Bulgaria, Malta, Turkey, Chechenia, Irak, Iran, Syria, Israel, Egypt, Libya, Saudi-Arabia, Sudan, Hongkong, Bolivia, Columbia, Venezuela, Cuba – and probably the USA. “Dissatisfaction” is nearly everywhere related to economic stress on the masses, and a broken promise of upward mobility. I am not sure “collapse” will be a singular catastrophic event. Maybe “collapse” is already here – as a long slow and hidden downturn and a bottomless shrinkage of life standard for the masses.

    • Chrome Mags says:

      “I am not sure “collapse” will be a singular catastrophic event. Maybe “collapse” is already here – as a long slow and hidden downturn and a bottomless shrinkage of life standard for the masses.”

      I think you’re right, however in my opinion there is slow collapse coupled with step down assisted collapse. 2008 great recession was a step down. Once we’re into another recession that will be another step down, but it’s unlikely the CB’s will be in a position to do as much as they did in 08 to buy more BAU time. That will speed up slow collapse and at some point it will become obvious, it’s fast collapse. Then the blame game will be in full swing.

      With 7.7 billion people (as of Dec. 2019) all stressed out in a riot raging, super harsh, fast collapse, a nuclear war might be merciful in a sense, because it will end the misery quickly for billions rioting for a few crumbs and a splash of drinking water.

      • I am afraid you are right. I am afraid the choice we have is not between too much CO2 and a sustainable future. Instead, it is a choice of which way we degrade the world environment. A major nuclear war would be a different way of degrading the world environment.

  25. V.A. Bykovskii writes in a 2011 research paper:
    In 1969, the USSR gas and oil industry found itself in a difficult situation, because the increase in the volume of proven reserves was falling behind the rise in the oil extraction volumes, which was caused by the systematic insufficiency of capital investment in thedevelopment of the industry and the totally unsatisfactory material and technical supply. The situation was further complicated by the fact that most of the major oilfields had reached their maximum production capacity and at some of them the production was even reducing. This made it necessary to intensify the development of new oil production facilities in the north of Western Siberia. At the same time, the formation of the country’s new oil and gas base was hindered by the insufficient capital investment and the meager supply of equipment and materials (the situation was especially difficult with the supply of OCTG (Oil Country Tubular Goods), technical equipment, and transport facilities) and housing shortage for workers in the sector.

    In the 1980s, the problems not only remained serious but were becoming increasingly urgent. The oil industry was developing in accordance with the central planning directives regulating the level of oil production and the limits of the allocated funds, as well as material and technical resources. This situation led to the unbalanced management of production processes in many respects. As a result, the sustainable functioning of oil producing regions and industry as a whole became impossible. The operational difficulties were aggravated by the inflated plans of oil production established by the country’s political leadership. All this led to a drop in the level of oil production. While in 1988 oil production was estimated at 408.6 million tons, as soon as 1990, the state order was not fulfilled and the oil extraction volume fell by 18 million tons.

    A graph in the above publication shows that there was an over-production of oil between 1970 and the mid 80s (peak oil in Western Siberia), violating the “technological modes of production”. In other words the oil fields were damaged by overzealous party apparatchiks so typical for communist regimes.

    A 2006 Brookings paper writes:

    By the mid-1970s both oil and gas had become vital to the Soviet Union’s domestic and foreign policies. Oil, which had always been a key raw material for military purposes, began to be used increasingly as an instrument of so-called soft power, especially in Eastern
    Europe. The Soviet Union deliberately created dependency on its oil by forcing its Eastern European satellites to transform their heavy industries to run on oil (instead of, for example, abundant coal in the case of Poland), then supplying Soviet oil almost free of cost. The value of that subsidy skyrocketed as world oil prices rose sharply in the mid-1970s. Once the dependency had been created, any reduction in supply threatened the stability of the regimes. Hence the Soviets had no choice but to keep producing more and more oil to supply them. In effect, both the satellites and the Soviet Union itself were addicted to oil.

    • Matt, surely this addiction applies all round, East & West?

    • Thanks very much. I made note of the Brookings article for further reference.

      At the time when Russia created the dependency on Russian oil, the selling prices of oil and coal were not very different. They were both very low. And the world hadn’t reached “Peak oil” in the US, so that was not as foremost in people’s minds. So the dependency wasn’t quite a bizarre as it sounds today.

  26. Malcopian says:

    While I do regard all Gail’s posts as a must-see, I did find this one very long. Gail seemed to be re-telling the whole story, which is well known to her regulars, before reaching her newer insights, so I found my attention flagging before I reached the end.. For that reason, I think the post could have been cut to around a quarter or a third of the length. Tim Morgan’s posts on his Surplus Energy blog are generally somewhat shorter, because he does not repeat the whole story each time. I regard both blogs as essential reading, however.

    Gail is of course a highly original thinker and probably unique, so I will always read her posts. And the fact that she is a former actuary, with experience of whole systems across various disciplines, makes her a particularly formidable thinker. This is just to highlight how much I do value Gail’s insights and to stress that my criticism above is to do with presentation, not content, so I hope it doesn’t come across as too harsh, and I do look forward to all her posts.

    • I agree in some senses that there is much repeated here, and that many of Gail’s posts fall into the category of “telling the same story again.” If only more people were ready and getting the story! However, I have to disagree with you here, because although this post is long, I think it is one of her best recent posts, in that it ties the larger repeated story to the current goings on in the economy and links it all back to global trends including historical patterns. In that sense this is one of the most complete posts in some time, and if I were to flag one to share with the uninitiated this one would be a good one to share, because it does included the repeated narrative, but it breaks new ground in applying these to our current predicament, especially with respect to the pervasive turmoil we are witnessing across the globe right now. I am never convinced that these it one explanatory model that explains social or economic reality, but Gail makes a good case for the foundations of much of this global turmoil. We can’t overcome physics, but does that mean we are doomed to fall into this next recession, and what can we do to soften the landing or build more resilient systems for the future?

      • happtholidays says:

        Why telling the same story? Because the story makes sense! Gail retells the story everypost often addressing a topic in the MSM or current event. And it always fits. You go girl. Tellyour story. I for one will be always waiting for the next post.

    • I expect that some people will feel this way.

      I do not have a book out, so the only way people can understand the whole story is by being regular and diligent readers. While you have been able to do this, and a few hundred or thousand others have been able to do this, I thought I needed to write up the whole story in a way that people who had seen only parts of the story could understand the full context. In some sense, it might be considered a “book substitute.”

      • Linda Nelson Schwandt says:

        While I read most of what you write, Gail, and believe I have at least a fundamental understanding of the points you make, I appreciated that you shared “the whole story” in this post. Most of us can benefit from reviewing what we may already know. Additionally, there likely are new readers who gained further understanding of “our finite world.”

        • Thanks! I hadn’t realized you were taking the time to read my posts.

          Linda is a friend from long ago. Our parents were neighbors back when we were children.

          • Tim Groves says:

            Critics told Gibbon his History of the Decline and Fall of the Roman Empire was too long. Mind you it did run to six fat tomes. Eventually, one hopes to see Tverberg’s History of the Decline and Fall of the Industrialized World, at least in a paperback edition.

            • Robert Firth says:

              The Everyman edition of Gibbon’s “Decline and fall” is 3980 pages long. It covers a span of time from 98 to 1590, or almost 1500 years. At 2.6 pages per year, it does not seem too long!

              Marcel Proust, by contrast, needed seven volumes to cover 14 years, and produced one of the most terminally boring “masterpieces” in literature.

  27. JT Roberts says:

    “As a historian, you have to be conscious of the fact that every civilization that has ever existed has ultimately collapsed. . . . one has to live with a sense of the inevitability of tragedy. As a statesman, one has to act on the assumption that problems must be solved.”
    Henry Kissinger.

    Nice post Gail.

    One of the most important take always is higher energy cost depresses wages. So it delusional to believe the economy can repay its obligations with rising energy costs. They need to be falling. Actually they’re too high now.

    Limits to Growth predicted this situation. Because of scarcity and depletion more “capitol” would need to go into the energy sector limiting industrial output.

    Perhaps the expression “capital” was too difficult for economists to understand. Childishly they think it is only money. Rather it is a basket of resources that can be applied to the system. It includes knowledge labor infrastructure transportation. As these are steered into one activity or another it depletes other competing activities.

    One of the most depleted of the resources is knowledge. Discovery of oil fields was paid for long ago. For example the Permian basin was well known for decades. That knowledge is now gone it’s been exploited.

    Entropy is nothing more or less than the loss of information

    • Thanks for your fine comment.

      I figured out several years ago that higher energy costs depress wages. This was one of my “ah-ha” moments. We cannot live on higher-priced resources, unless we can somehow offset the higher prices with efficiency gains. Of course, we still have entropy issues to deal with as well. The efficiency gains are net of entropy losses. This is what is the killer.

      We may think of this as the information age, but as you say, “Entropy is nothing more or less than the loss of information.” All of these super-complex systems we put together are subject to failure. One of the biggest sources of failure is the inability of customers to pay for them. For example, the 5G network will theoretically provide benefits to certain customers, such as those who want and can afford self-driving cars. But to the average internet user, placing an Amazon order or reading email, it will make no difference. Average internet users cannot afford to pay more for this better service. If internet rates are raised for average customers, it will push the system toward collapse because they will have fewer funds to spend on food, clothing, heating and other necessities.

    • Sven Røgeberg says:

      I likes the quote from Kissinger! Do you have the exact reference, JT Roberts?

      • Sven Røgeberg says:

        … like…

      • The quote is actually available twice: in a October, 1974 N. Y. Times interview, and in a 1976 N. Y. Times article called The Gloomy Side of Historian Henry A. Kissenger.

        The New York Times article says Mr. Kissinger probably best summed up his own view of history in an interview with The New York Times in October 1974, a time when he was deeply concerned about the ability of the West to mailtain unity in the face of worldwide recession and inflation caused by the Arab oil embargo and subsequent steep price rises; When Portugal, Italy, Spain, Greece and Turkey all seemed in precarious political situations.

        Asked if he considered himself “essentially tragic,” Mr. Kissinger replied:

        “I think of myself as a historian more than as a statesman. As a historian, you have to be conscious of the fact that every civilization that has ever existed has ultimately collapsed.

        “History is a tale of efforts that failed, or aspirations that weren’t realized, or wishes that were fulfilled and then turned out to be different from what one expected. So as a historian, one has to live with a sense of the inevitability of tragedy. As a statesman, one has to act on the assumption that problems must be solved.”

        The original interview can be found at this link:

        • Robert Firth says:

          “History … is indeed little more than the register of the crimes, follies, and misfortunes of mankind.” – Edward Gibbon (1737 to 1794)

        • Sven Røgeberg says:

          Thanks a lot! Looking forward to reading that interview.

  28. in the middle of UK election fever right now

    trying to point out that you can’t vote for infinite prosperity is an excercise in futility

    Yet this is the regular bleat from voters I talk with—that this or that political party will somehow ‘fix things’ and deliver some kind of normality.

    We have an energy crisis, not a political crisis—occasionally someone ‘gets it’—or seems to. Then meeting up again a week later and finding their mindset has ‘reset’—that it’s all about politics. (and all my fault for suggesting otherwise)

    • Harry McGibbs says:

      There is this oversight, too:

      “For all the marked policy differences between the different parties in the UK election, they share a common blindspot. They all seem to assume that the UK is the sole determiner of its economic fate.

      “There is nothing in the party manifestos about how they would respond to the very real threat of another major downturn.”

    • There has to be a story that people can tell that allows a better tomorrow than today. Assuming a different political leader can solve the problem is really wishful thinking.

    • Tim Groves says:

      I have been making the same point as Norman in my pre-election chats with fellow Brits. Nobody has gotten it yet.

      In response to my energy crisis argument, my dear brother assured me that “the planet is a huge dynamo wind and solar being the minor contributors and tidal the great wealth everything is waiting for the will to commit to it. But those in power fear a new order where they lose control and will resist the necessary change until the people of the world insist on it.”

      Could you have a word with him, Norman? I don’t have the heart to get into a scrummage with him about the planetary dynamo and tidal power.

      • Xabier says:

        It’s the common fault of imposing a moral and emotional narrative on what is a physical issue.

        Only vested interests and corrupt elites stand in the way of Utopia; all we need is will-power: ‘All could be perfect but for them….’ etc

      • Your dear brother sounds like my dear brother—could it be the same person, and we are actually related? A mixup in the maternity ward perhaps?

        The certainty persists that ‘they’ are going to fix things

        • Harry McGibbs says:

          I regret raising such issues with my family at all. I thought that, even if some the details seemed abstruse, the basic common sense proposition that you cannot have an infinite growth paradigm on a planet of finite resources would resonate.

          But of course they looked at me like I needed sectioning. 😀

        • Tim Groves says:

          As I look at it, the members of each generation in each culture all start out with the same “factory settings”—the basic conventional education—and most of us don’t get very far in reprogramming ourselves.

          The working class obsession with this shadowy “they” is very widespread. “They” are either going to fix things”, or else they are “fixing” things in their own interest and making everyone else’s life a misery in the process. “They” are simultaneously the core of the problem and the core of the solution.

  29. Niko B says:

    I found this paper worth reading.

    The solution to the unintended consequences of modernity is, and has always been, more modernity – just as the solution to the unintended consequences of our technologies has always been more technology. – Ted Nordhaus and Michael Shellenberger.

    This paper presents an evidence-based critique of such techno-optimism, arguing that the vision of progress it promotes is unrealisable due to the limits of technology and the inherent structure of growth economics.

    • I know that at least at some times in the past, Samuel Alexander has been a reader of OFW. I note that at the end he says, “We must embrace life beyond growth before it embraces us.”

      This doesn’t sound like something I would say. It sounds like academic-speak.

      With his audience, he cannot tell the whole story, even if he has figured it out.

      • Niko B says:

        I tend to agree Gail.
        Still promises that we can work it out smoothly and orderly.
        Best not scare the audience too much.

  30. Xabier says:

    Thank you, Gail, for a post that pulls together so much – however daunting the prospect of what is in motion……

    • Let me chip in, Gail, thanks for the exceptional clarity of this article.

      • When I offered to give this talk at the Annual Meeting of the Casualty Actuarial Society, the people in charge offered me the services of another casualty actuary to help with the article. I connected with the young female actuary assigned to me. I first put together one draft of my presentation. Then this woman and I talked through the draft on the phone for an hour, and she explained to me what was not clear. She would say things like, I think you need to explain this before that. So I went back and put together another draft of my presentation. This was repeated. In fact, this presentation represents about the fourth draft.

        The article as written up doesn’t exactly match what I said to the groups of actuaries I talked to. I added some things I thought would be of interest to readers and left out the specifically insurance things at the end.

        I hesitated to put up such a long post, but felt like I needed to have a version of my story that went, more or less, from start to finish.

        I think that there were about 500 actuaries who heard my talk, between the two sessions that I gave my talk. There were people standing in the back and sitting in the aisle, the first time I gave it. There is a recorded version of my talk up on line, but it costs $150 to access the group of talks that it is part of.

        • Harry McGibbs says:

          Gail, it is a masterful overview.

          What a privilege it is to peak behind the curtain of the global economy and understand the swings in its fortunes, going back generations, as derived from changes in energy and resource flows.

          It makes me feel like a rogue cell that has been given a flash of insight into the macro-agenda, and fate, of the entire organism.

        • Ano737 says:

          I’ll also chime in as a newcomer – the comprehensiveness is a plus and the post is great. I understand how long time readers feel, but it really is easy to quickly skim through familiar parts. This is why I much prefer transcripts to audio or video, especially for topics I’m at least somewhat familiar with. Thanks for this and all your posts as well as your active participation in the comments section.

  31. Harry McGibbs says:

    “When one of the more arcane bits of the global financial system’s plumbing seized up in September the authorities were quick to dismiss it as a one-off event. It’s now clear the meltdown in the US “repo” market was due to circumstances that were more complex and disturbing than the initial diagnosis suggested.

    “Significantly, the malfunctioning of the US repo market showed the policies of central banks and prudential regulators have changed the roles and diminished the capacity of banks to respond to stresses in key parts of the financial system.”

    • Each one of these articles adds some more nuances to what went wrong. It is a miracle that the self-organizing system stays together as well as it does.

      • Robert Firth says:

        With respect, Gail, I am not sure. Self organising systems tend to be very stable, as were the Western economies between 1815 and 1914, when they were largely left to sort themselves out. But the Twentieth Century embraced the delusion that our economies ought to be guided by “the great and good” (Kaloi k’agathoi in the original, the delusion that led to the ruin of Athens), encouraged by Frederick Winslow Taylor and the abominable John Maynard Keynes. But the great and the good never recognised that Nature was far, far smarter than they. Hence much of our monetary predicament.

        • Perhaps I should say, given how poorly the complex systems that we humans create perform in practice, it is a miracle how much better self-organizing systems work.

          For example, I tried to order a couple of things from websites and gave up when the websites wouldn’t work as planned. I ended up calling the 800 numbers listed and talking to a real person in both instances.

          • Robert Firth says:

            Thank you, Gail, and I wholeheartedly agree.

            For me, one key difference is that in a self organising system, there is no “government” and no coercive power save peer pressure. Bats swarm in the hundreds of thousands, in caves in utter darkness, and fly wingtip to wingtip and nose to tail. But they do not collide. So, is there a “Bat Traffic Control” system directing their movements? Of course not: they do it all by themselves.

            A swallow flies at 60 km/hr, or about 17 m/sec. And they fly less than one length apart, or 20 cm. In other words, they are just 12 ms away from collision, but you have never seen a two swallow midair collision. Our aeroplanes, with all that top down control, must fly at cruising speed 15 minutes apart, or 75000 times the time separation of swallows (!) We are doing something very, very wrong.

            • here, the murmuration of starlings in an autumn sunset is wondrous to behold, a thing of mesmerising beauty–why and how do they do that?

              a cloud of individuals where none collide, like the bats and swallows. Something in nature that humankind is not privy to.

              But to say: ”we must be doing something wrong”—ie in comparing the phenomenon to human activities is somewhat fatuous. (unless some humourous irony was intended–in which case, apologies)

              If, in order to collect sufficient energy to exist, all you had to do was run around all day with your mouth open in order to catch insects, then your brain, in the course of evolution, would have developed the means by which you did not collide with others.

              As it is, our means of energy acquisition surrenders part of itself in collision with our fellow human beings as part of the price we pay for it.

              Traffic accidents, wars, pub brawls are all part of our ‘collision process’ . Most of us try to avoid such things. We fly in aircraft where the pilot won’t involve himself in dogfights with competing airline planes and other pilots

            • Kowalainen says:

              All top down hierarchical structures is based on the concept of untrustworthiness and a chain of command to mitigate the impact of a rouge maverick.

              Swallows and other flying animals rarely collide because they are evolved from humble origins. Just as humans rarely collide with each other in busy streets.

              Airplanes and air control is not evolved out of the pragmatism of nature, they are engineered with safety in mind, even though it might be a sub-optimal state which in the long run leads to more accidents and mishaps if the failure is an endemic flaw in the system and chain of command.

              With a higher degree of automation and reliability, the significance of a top-down hierarchy diminishes. It is simply not relevant anymore. The automated/AI aircraft only need to know what the other aircrafts have on their sensors, an open communication channel between each other and what the ground sensors tell them. Then it is a matter implicit control of the swarm using distributed algorithms between the aircraft. If some human operated aircraft misbehaves in the swarm, the rest of the AI aircraft accommodate for that by increasing the margin of safety.


            • Robert Firth says:

              Norman: yes, the comment was meant as a bit of cynical humour. By the way, bats do not just fly around swallowing insects. They target the insects using chirp sonar, and actively chase and catch them. That exact same technology (proven over 60 million years) could be used to prevent Singapore’s tube trains from colliding, instead of the top down computer control that crashes them into each other.

            • Interesting! The idea of putting in 5G Internet to enable top-down control in such a way that self-operated vehicles will not collide is a no-go. Too costly–too much overhead–too complex.

            • Kowalainen says:

              I am sure that is why the Chinese Communist party is eager on pushing out 5G networks. It’s in their long-term strategy to control everything for their own benefit and power ambitions.

              The rest of the world considers V2V networking as the primary goal of swarm intelligence.

              “Vehicle-to-vehicle (V2V) communications comprises a wireless network where automobiles send messages to each other with information about what they’re doing. This data would include speed, location, direction of travel, braking, and loss of stability.”


          • rilygtek says:

            Self organizing system tend to produce maximum complexity. Just look at life on earth itself. 100% solar powered, and with an astounding complexity that yet has to be matched by technology.

            We create obscure complications leading to their own self destruction from hierarchical bloat and overload buckling from its own internal endemic structural problems, such as a lack of trust and a wish to dominate others.

  32. Harry McGibbs says:

    “Weakening economic growth, low interest rates and more volatile operating conditions will increase the credit challenges for lenders across the world, Moody’s Investors Service said in a report published today. The agency cut its outlook [for banks, globally] from stable to negative.

    “A return to monetary easing and the use of negative interest rates in some regions has ramped up the pressures on profitability.”

  33. AlfredCairns says:

    “The cuts by OPEC have not had a material impact”

    To me, it seems clear that the severe sanctions against Iran and Venezuela, and the destruction of Libya are attempts to throttle supply – so as to protect US shale and the Saudi autocracy.

    • Yes, it was primarily about buying time, keeping the global debt/credit recycling scheme running for another day.. Although the Gulfies are now calling themselves OPEC+ (incl. Russia) when various other deals incl. armaments are increasing. Also the Saudi Aramco IPO attempt for laughable ~1T was another clear sign the game is nearing the end (1-2x more decades at max)..

    • These sanctions and the destruction of Libya were likely don’t under the pervasive belief, “Less supply will raise prices.” It doesn’t work this way, unfortunately. Less supply will cause the economy to “make a smaller batch.”

      In some sense, the energy mix is not cheap enough to produce affordable goods and services. Coal was the cheap element in the energy mix. As long as there was a lot of coal in the mix, it helped to keep prices down. But with its contribution declining, and with so-called renewable energy consumption rising (which is in truth, high cost), the overall cost is rising. This doesn’t really doesn’t work.

  34. Ano737 says:

    Gail, you mentioned the unreliability of Chinese GDP figures. Much of the world’s interest rate level is and long has been thoroughly artificial and aggressively imposed (as with recent fed repo intervention). So, how can we use interest rates as any kind of signal about the real economy?

    • Long-term interest rates seem to be self-organized. They seem to depend on the return that businesses can really obtain when they invest funds. Negative self-organized interest rates seem to indicate that there really aren’t profitable investments that can be made. Japan and Europe look terrible on this basis.

      Governments can try to bring interest rates down by “printing money” to buy up outstanding debt. This does seem to have an impact on self-organized interest rates, even long term interest rates.

      The big issue is that interest rates now are about as low as they can go. Buying up debt to reduce interest rates further will be detrimental to the economy.

      High interest rates (without recession) are a sign of rapid energy consumption growth and a rapidly growing economy.

      Low interest rates are signs of problems. As long as another step downward in interest rates is available, there is a possibility that these problem can be held at bay for a while longer. But once there is no way to reduce rates further, we seem to be at the end of the line.

  35. Harry McGibbs says:

    “The global car market will have shrunk faster in 2019 than at the height of the financial crisis, with 4m fewer vehicles sold than last year, according to the lobby group for the German auto industry.

    “The Association of the Automotive Industry warned of further job losses during the next 12 months, with an ongoing downturn in China. Rapid growth there helped the sector recover from the global recession a decade ago.”

  36. scarmalt says:

    Very good post. Publicly available data on the Chinese economy is scarce, so there are only hints that this may be the source of coming economic problems. But I think these are the most important observations in this post.

  37. Harry McGibbs says:

    “China’s car sales continued their decline in November, extending a historic slump and all but ensuring a second straight annual drop for the world’s biggest market.

    “Sales of sedans, sport utility vehicles, minivans and multipurpose vehicles fell 4.2% from a year earlier to 1.97 million units…”

  38. sam carmalt says:

    Throughout you hint that slowing growth in China may pull the global economy into recession, but with the exception of the leveling of coal production there is little actual data. At least some additional analysis of the stresses on the Chinese economy would be useful.

    • China has been retooling for “cleaner coal” facilities in their W ~deserts.
      This however won’t replace fully their previously reached top capacity/output in burning cheaper dirty coal at least in the near/mid term. It would be nice to have the real numbers on it, but in general Gail is likely still correct that China’s coal rocket ride stalled (for ever) with the suggest global implications..

    • Sorry, it is impossible to cover all of the topics at the depth a person would like in one post.

      • Robert Firth says:

        Dear Gail, I would be both happy and honoured to read about any topic you choose to post about “in depth”. I my book you are one of the wisest people on the Net. May your shadow never grow less.

    • rilygtek says:

      The skimming and ruthless exploitation of semi slave laborers in the Chinese economy has been a big factor in dragging down the economy. The Politbüro has to go.

  39. Andi says:

    We could buy a little time if the government pumped money directly into production and to consumers. It won’t cause large inflation if the goverment prints it’s own money. That would keep prices up for producers too. Theoretically it could work until there are enough rescourses. Debt jubilee worked in ancient civilizations. Today’s system is way too complex, so even a small disturbance can wreak havoc.

    • I am sure that many things will be tried. Giving more money to consumers is likely to be one of those things. Maybe we can push the problem off a while. One of OFW’s commenters compared debt to coffee or amphetamines. When we don’t have enough energy, we can try more coffee or amphetamines. It may help us feel better for a while. But it really isn’t a substitute in the long run.

      • I believe one or two of the POTUS candidates are floating the idea of UBI

        apparently the total cost would be $1 trn +

        • interestingly though, many “top/influential” socialists don’t like UBI at all, they believe a mere policy change could transform the trajectory and restore past peak (~1960s) prosperity and income distribution by a mandate.

          If the current trends hold, after extrapolation the mid term future will retain this discrepancy, say socialist taking over govs, and UBI proponents going slightly up holding 10-20% of votes..

          But it is indeed possible in some regions/countries they might go on top and actually attempt/phase in UBI, but I doubt it will be any major IC hub before ~2035.

        • rilygtek says:

          Fossil fuels is already our UBI. The thing most people in IC occupy themselves with is fake “work” through large and expensive government military corporate complex jobs programs which can be shut down by the stroke of a pen.

    • Davidin100millionbilliontrillionzillionyears says:

      wholly appropriate comment on the severe global recession which is almost upon us…

  40. davekimble3 says:

    Everyone is familiar with the driving force of Industrial Civilisation – to increase GDP. The data shows that that can only be done with increased energy use. 90% of that energy is fossil fuels, which produces the CO2 emissions that are killing the planet. So effectively IC increases CO2 emissions and kills us.

    There is only one way to stop this. We must all STOP BUYING STUFF. If you don’t buy the stuff, the producers will go bust and stop producing. This will cut fossil fuel consumption and cut CO2 emissions. Its very simple, stop buying stuff. It is not the politicians who make us buy the stuff, it is YOU and ME.

    You won’t hear this at COP-25, but that’s because no one wants to give up buying stuff, especially with Christmas coming up.

    • If we stop buying stuff, it will bring down prices further. Jobs will disappear. This is what makes collapses happen. People stop buying stuff, if there are too many people with low wages. Or too many people required to spend large parts of their income on high-priced homes, high-priced autos, high-priced health insurance and other necessities.

      • Xabier says:

        If sawing through the branch you are sitting on is the only job in town, that’s what you do.

        BAU and consumerism until it can’t go on any longer = Collapse.

      • davekimble3 says:

        Either serious climate change or collapse WILL happen anyway. An early collapse will at least sweep the rotten system away and give the world options with some resources still available.

        • Collapse will happen, regardless.

          I don’t think an “early collapse” has any benefits.

        • Artleads says:

          Getting rid of the rotten system would get rid of antibiotics and the computers that run hospitals. No trucks, so no food in the store. Is this what you want?

          • Robert Firth says:

            Very good point. However, note that our present rotten system has pretty much destroyed the effectiveness of antibiotics through massive and gratuitous overuse in factory farming. That’s why my (imaginary) bet is on the White Horse.

    • neil says:

      If we stop buying stuff, this country reverts to an economy based on small time farming with us all living in little cottages, the default position we always had prior to my grandparents’ generation. Unfortunately our climate means we’re prone to potato blight.

      • We don’t have the little cottages or the tools to do small time farming. We don’t have the skills or the seeds, either. It is very difficult to go backward.

        We know that hunting and gathering (probably with a predominance of gathering, and most hunting being for fish) happened first. Humans’ ability to cook food started over one million years ago. We have to have some way of cooking our food. There are not enough forest to cut down, especially if we try to use wood both for fuel and for smelting metals. Without a way of cooking our food, we need bigger teeth and guts and a smaller brain. Humans would revert to looking more like chimpanzees.

        • The conclusion remark – observation was true and funny.

          Nevertheless the bottom line is the required know how (low tech – no till – perennial agri), tools, and people are there dispersed already (yes tiny minority yet distributed). Those people and their plants and animals will have to restart it. Surely, it’s unlikely this could be turned on a dime feeding ~8B pop, hence the future lower population and social arrangement taking shape of some derivative of early patronage-feudalism or perhaps other modes..

      • davekimble3 says:

        Little cottages, mud huts and caves, and there are not enough of them to house the world’s current population.

    • Kowalainen says:

      Yeah, you start by stopping buying stuff and to procreating. I am sure you will gather a rather substantial following (sarc).

      No, the only way is to hike energy prices and make the redundant protoplasm of consumerists find out that a prosperous future just isn’t going to happen.

      The financial system can be patched up to accommodate for the upheaval. One good starting point would be to dismantle the unholy government corporate complex.

    • Phil D says:

      “90% of that energy is fossil fuels, which produces the CO2 emissions that are killing the planet.”

      Do you realize CO2 is literally plant food? More is better for life on the planet. This climate doomer view of CO2 is absurd. I *facepalm* every time I see a statement like this.

  41. Bei Dawei says:

    OK, Doomer!

  42. richard b says:

    Super post. The interest rate chart is fascinating. It’s the line in the sand between real growth and (unsustainable) debt fuelled growth.

    When rates go negative we’re into real contraction, not that negative rates can ever make any sense.

    Doesn’t look like we have much time left.

    • Rodster says:

      “ Doesn’t look like we have much time left.”

      We have been saying that for a long, long time and yet here we are. Probably the better saying is: “things will continue, until they can’t”.

      • Niko B says:

        Certainly feels that way.

      • Mike Roberts says:

        Yeah, it has seemed, since the GFC, that the next recession will be even deeper and will be happening very soon, but somehow the world has muddled along, giving the impression of growth. I’m not sure how but maybe someone could offer a reason for why a global recession seems to have been avoided for so long?

        • Rodster says:

          “but somehow the world has muddled along, giving the impression of growth.”

          Because the world’s central banks are now running the eCONomy or in other words we could refer to it as 3 card Monty. It’s all rigged so as long as they have plan C,D,E,F,G,H, etc they can keep the system afloat. The current plan is near zero or negative interest rates.

          If that doesn’t work, they’ll try something else and if that doesn’t work they’ll try something, something else until nothing works. That’s when the saying will have meaning: “things will continue until they can’t”.

  43. Chrome Mags says:

    “We don’t know quite will happen. The closest analogy is the Depression of the 1930s. More financial problems seem likely. In fact, they could escalate quite quickly. More strikes, such as those currently going on in France, seem likely. The situation is likely to play out a little differently in various countries.”

    True enough, we don’t know exactly what will happen. I keep thinking it’s going to lead to a world war, because it’s in our nature to seek out someone or a culture or a country to blame, because otherwise we end up blaming ourselves and that’s like admitting wrongdoing and people always resist that beyond anything else. In this case there probably isn’t anyone to blame, it’s just the depleted end of the oil age, but they’ll still seek out one’s to blame, locally, regionally, nationally and internationally. Even when there are much fewer people in the aftermath of conflict, people will still be seeking out one’s to blame, maybe even because of someone being a baby boomer. “Hey, your generation caused all this to happen!”

    • Xabier says:

      Wars are, historically, mostly very rational: looking to get hold of land and resources, carry away gold and jewels. Although in the Middle Ages war was a form of outdoor sport as well, for the aristocracr who needed something to do.

      Germans in the 20th century blamed the other earlier imperial powers for keeping them from their share of all the goodies of the planet, and WW1 and 2 were their attempts to get hold of them by force (the Germans have done much better for themselves using the Eurozone to grow wealthy without the use of force).

      So, when we see conflict between states, it will likely have a rational cause in the struggle for resources – as for instance in Iraq and Afghanistan.

      The inter-generational blame-game now being encouraged, telling even very little children that all those older than themselves are to blame for climate change – and their imminent deaths – is potentially very dangerous, not to mention psychologically damaging.

      ‘Take that! Boomer!’ is not unlikely……. Or perhaps the young will just take to drugs to quell the misery – a wise government might supply them in some form as a pacifier.

      • Robert Firth says:

        Xabier, I agree. The nest war will most probably be an intergenerational one. All over the world, pension (or social security) schemes are flat bankrupt, and cannot pay what they have promised. But older people have influence, and power, and votes, so they will rob the young until the bitter end to extract their “entitlements”. And a whole generation of politicians, many of whom have no children of their own, will enable them.

        • DB says:

          Your conclusions, Robert and Xabier, are logical, but there is also another side to it. Those pensions and investments held by older persons also tend to underlie the inheritances of their heirs. Declining wealth of parents is declining future wealth of their children. And it affects younger generations in the present, too. As it becomes more difficult financially for older generations, they cannot help their younger family members financially and may even need to depend on them for support. One or both of you have given such examples of how this worked in pre-industrial times. Pensions, retirement schemes, and Social Security programs are almost as much benefit to the young (through decreasing/eliminating the need to support elders) as they are to the old. So there might not be as much inter-generational conflict as we might expect as the pool of resources shrinks.

          • Robert Firth says:

            Thank you, DB, an excellent point. Perhaps I was too influenced by those RV bumper stickers that read “we are spending out children’s inheritance”. But this much I do believe: as long as older people do not have to rely on their own children, but can rely on other people’s thanks to the State, they will have far less incentive to help the next generation. As our resource base shrinks, this will become an ever bigger problem.

          • Artleads says:


    • When I looked at the financial data associated with World War II, I was shocked at how beneficial it seemed to be from the point of the US. Borrowing jumped and GDP jumped. Many women joined the labor force. Energy consumption started growing. The US was finally able to leave the Great Depression behind completely.

      • Yep, the negative side of it recycled mil-industrial nazis (re-)entered the perennial “deep state” as Ike from first hand knowledge warned about.. the last course correction attempt by JFK ended up in classic banana republic style.. and the rest is history incl. the late 1970s early 1980s trick with reversing interest rates and winning the cold war against Soviets, but “loosing it” now against China and Russia (I hear you you they could go down first scenario again). These processes took longer than expected, but from “3rd/4th turnings” macro zoomed out perspective it’s all fast development..

      • Sven Røgeberg says:

        Hi Gail! I am very interested in the topic. Would you mind saying where you found the data?

  44. Davidin100millionbilliontrillionzillionyears says:

    “There are many people who say, “Of course, oil prices will rise. Oil is a necessity.” They forget that it is really a two way tug of war between producers getting a high enough price to be profitable and consumers getting a low enough price to be affordable. There will be a winner and a loser.”

    or perhaps it’s a lose/lose scenario…

    the situation we now have is that the price is too low for many producers (shale oil, heavy oil, maybe deep water oil) and too high for an increasing percentage of common citizens…

    • Kowalainen says:

      It is a free fall race to the bottom. The last one hitting rock bottom is the “winner”. Not that it makes any difference.

      The consumerism has reached the logical conclusion.

      • Phil D says:

        “Rock bottom” is relative. It may consist of a simpler lifestyle – no commuting, fewer electronic toys, no eating out at restaurants, no consumerism, a return to making products that last forever, more walking/less driving, eating more local and seasonally available foods.

        When you put it that way, it doesn’t sound so bad.

        • Without fossil fuels, there can’t be very many of us. Forget simpler lifestyle; the situation is vastly worse than this, I expect (unless somehow, some economies can hold on for a while longer). Electricity will disappear early on, perhaps before oil.

          The idea of wind and solar allowing electric cars is over the top absurd, as far as I can see. Our big problems are paving roads and keeping electricity transmission up. Wind and solar do nothing for these issues. They allow politicians to look like they are doing something.

          • the missing factor with electric cars, is having somewhere to go to, and a reason to go there

            travelling uses energy, it does not produce wages—an almost impossible concept to put over

          • Phil D says:

            But if energy affordability is the issue, then surely it doesn’t all become unaffordable at once. The world’s energy mix isn’t all delivered at one single price, but at a range of prices and volumes from very cheap to very expensive. My view is that higher-cost energy will be shed from the system first, then next highest-cost, and so on, over time. We won’t go from 100 to 0, but in step changes down from 100 to 90, then to 80, then 70, etc. Each step change will be jarring and as each tranche of unaffordable energy is shed, out will be tossed complex structures and technologies, and probably a portion of the planet’s population will be jettisoned one way or another as well. The down-steps won’t be evenly distributed around the planet. The peripheries will shrink, to keep the centers somewhat-alive. Countries that have secure access to cheaper energy, food supply, and weaponry, might muddle through. I would not want to be in a place like India or China 40 years from now – both are massively dependent on food and energy imports. This doesn’t bode well in a world where the pie is shrinking.

            • if you live in a tent city in LA, then your drastic energy-shedding has already happened

              Seems to me that the result when it all gets to really large scale will be wars of denial—the scale of the wars being relative to available energy

              USA civil war seems inevitable, various factions screaming conspiracy and all expecting Jesus to fix things, refusal to accept they have an energy problem and not a god-problem

              same applies everywhere else, just with different labels attached according to where you live

              Infinite growth forever—and so on.

              Maybe climate will shut us down. If the oceans get heat-choked then humankind is done for.

              But it could happen in any one of a number of ways.

              The only certainty is that it will be somebody else’s fault

            • rilygtek says:

              Everybody, chant with me.

              I AM THE PROBLEM!

              Let’s get the message out.

        • Robert Firth says:

          “Rock Bottom” is what the dinosaurs found, some 65 million years ago. But be of good cheer: their decendents, the birds, are still with us, and will be, unless they are all chopped apart by those “sustainable” windmills.

    • You are right. It is really a lose/lose scenario. Jobs disappear with the oil, so then the oil is still unaffordable.

  45. Davidin100millionbilliontrillionzillionyears says:

    very excellent post, thank you…

    after slide 5 you write:

    “2. Additional energy investments required to offset diminishing returns”

    I know your posts can get long (not too long) and you can’t go into detail about everything, but the implications of this point #2 are massive…

    it has become fairly obviou