Expect low oil prices in 2020; tendency toward recession

Energy Forecast for 2020

Overall, I expect that oil and other commodity prices will remain low in 2020. These low oil prices will adversely affect oil production and several other parts of the economy. As a result, a strong tendency toward recession can be expected. The extent of recessionary influences will vary from country to country. Financial factors, not discussed in these forecasts, are likely also to play a role.

The following are pieces of my energy forecast for 2020:

[1] Oil prices can be expected to remain generally low in 2020. There may be an occasional spike to $80 or $90 per barrel, but average prices in 2020 are likely to be at or below the 2019 level. 

Figure 1. Average annual inflation-adjusted Brent equivalent oil prices in 2018 US$. 2018 and prior are as shown in BP’s 2019 Statistical Review of World Energy. Value for 2019 estimated by author based on EIA Brent daily oil prices and 2% expected inflation.

Figure 2 shows in more detail how peaks in oil prices have been falling since 2008. While it doesn’t include early January 2020 oil prices, even these prices would be below the dotted line.

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

Oil prices can temporarily spike because of inadequate supply or fear of war. However, to keep oil prices up, there needs to be an increase in “demand” for finished goods and services made with commodities. Workers need to be able to afford to purchase more goods such as new homes, cars, and cell phones. Governments need to be able to afford to purchase new goods such as paved roads and school buildings.

At this point, the world economy is struggling with a lack of affordability in finished goods and services. This lack of affordability is what causes oil and other commodity prices to tend to fall, rather than to rise. Lack of affordability comes when too many would-be buyers have low wages or no income at all. Wage disparity tends to rise with globalization. It also tends to rise with increased specialization. A few highly trained workers earn high wages, but many others are left with low wages or no job at all.

It is the fact that we do not have a way of making the affordability of finished goods rise that leads me to believe that oil prices will remain low. Raising minimum wages tends to encourage more mechanization of processes and thus tends to lower total employment. Interest rates cannot be brought much lower, nor can the terms of loans be extended much longer. If such changes were available, they would enhance affordability and thus help prevent low commodity prices and recession.

[2] World oil production seems likely to fall by 1% or more in 2020 because of low oil prices.

Quarterly oil production data of the US Energy Information Administration shows the following pattern:

Figure 3. Quarterly World Crude Oil and Natural Gas Liquids production, based on EIA international data through September 2019. This is a fairly broad definition of oil. It does not include biofuels because their production tends to be seasonal.

The highest single quarter of world oil production was the fourth quarter of 2018. Oil production has been falling since this peak quarter.

To examine what is happening, the production shown in Figure 3 can be divided into that by the United States, OPEC, and “All Other.”

Figure 4. Quarterly world crude oil and natural gas liquids production by part of the world, based on international data of the US Energy Information Agency through September 30, 2019.

Figure 4 shows that the production of All Other seems to be steady to slightly rising, more or less regardless of oil prices.

OPEC’s oil production bobs up and down. In general, its production is lower when oil prices are low, and higher when oil prices are high. (This shouldn’t be a surprise.) Recently, its production has been lower in response to low prices. Effective January 1, 2020, OPEC plans to reduce its production by another 500,000 barrels per day.

Figure 4 shows that oil production of the United States rose in response to high prices in the 2010 to 2013 period. It dipped in response to low oil prices in 2015 and 2016. When oil prices rose in 2017 and 2018, its production again rose. Production in 2019 seems to have risen less rapidly. Recent monthly and weekly EIA data confirm the flatter US oil production growth pattern in 2019.

Putting the pieces together, I estimate that world oil production (including natural gas liquids) for 2019 will be about 0.5% lower than that of 2018. Since world population is rising by about 1.1% per year, per capita oil production is falling faster, about 1.6% per year.

A self-organizing networked economy seems to distribute oil shortages through lack of affordability. Thus, for example, they might be expected to affect the economy through lower auto sales and through less international trade related to automobile production. International trade, of course, requires the use of oil, since ships and airplanes use oil products for fuel.

If prices stay low in 2020, both the oil production of the United States and OPEC will likely be adversely affected, bringing 2020 oil production down even further. I would expect that even without a major recession, world oil supply might be expected to fall by 1% in 2020, relative to 2019. If a major recession occurs, oil prices could fall further (perhaps to $30 per barrel), and oil production would likely fall lower. Laid off workers don’t need to drive to work!

[3] In theory, the 2019 and 2020 decreases in world oil production might be the beginning of “world peak oil.” 

If oil prices cannot be brought back up again after 2020, world oil production is likely to drop precipitously. Even the “All Other” group in Figure 4 would be likely to reduce their production, if there is no chance of making a profit.

The big question is whether the affordability of finished goods and services can be raised in the future. Such an increase would tend to raise the price of all commodities, including oil.

[4] The implosion of the recycling business is part of what is causing today’s low oil prices. The effects of the recycling implosion can be expected to continue into 2020.

With the rise in oil prices in the 2002-2008 period, there came the opportunity for a new growth industry: recycling. Unfortunately, as oil prices started to fall from their lofty heights, the business model behind recycling started to make less and less sense. Effective January 1, 2018, China stopped nearly all of its paper and plastic recycling. Other Asian nations, including India, have been following suit.

When recycling efforts were reduced, many people working in the recycling industry lost their jobs. By coincidence or not, auto purchases in China began to fall at exactly the same time as recycling stopped. Of course, when fewer automobiles are sold, demand for oil to make and operate automobiles tends to fall. This has been part of what is pushing world oil prices down.

Sending materials to Asia for recycling made economic sense when oil prices were high. Once prices dropped, China was faced with dismantling a fairly large, no longer economic, industry. Other countries have followed suit, and their automobile sales have also fallen.

Companies operating ships that transport manufactured goods to high income countries were adversely affected by the loss of recycling. When material for recycling was available, it could be used to fill otherwise-empty containers returning from high income countries. Fees for transporting materials to be recycled indirectly made the cost of shipping goods manufactured in China and India a little lower than they otherwise would be, if containers needed to be shipped back empty. All of these effects have helped reduce demand for oil. Indirectly, these effects tend to reduce oil prices.

The recycling industry has not yet shrunk back to the size that the economics would suggest is needed if oil prices remain low. There may be a few kinds of recycling that work (well sorted materials, recycled near where the materials have been gathered, for example), but it probably does not make sense to send separate trucks through neighborhoods to pick up poorly sorted materials. Some materials may better be burned or placed in landfills.

We are not yet through winding down the recycling effort. Even the recycling of materials such as aluminum cans is affected by oil prices. A March, 2019, WSJ article talks about a “glut of used cans” because some markets now prefer to use newly produced aluminum.

[5] The growth of the electric car industry can be expected to slow substantially in 2020, as it becomes increasingly apparent that oil prices are likely to stay low for a long period. 

Electric cars are expensive in two ways:

  1. In building the cars initially, and
  2. In building and maintaining all of the charging stations required if more than a few elite workers with charging facilities in their garages are to use the vehicles.

Once it is clear that oil prices cannot rise indefinitely, the need for all of the extra costs of electric vehicles becomes very iffy. In light of the changing view of the economics of the situation, China has discontinued its electric vehicle (EV) subsidies, as of January 1, 2020. Prior to the change, China was the world’s largest seller of electric vehicles. Year over year EV sales in China dropped by 45.6% in October 2019 and 45.7% in November 2019. The big drop in China’s EV sales has had a follow-on effect of sharply lower lithium prices.

In the US, Tesla has recently been the largest seller of EVs. The subsidy for the Tesla is disappearing in 2020 because it has sold over 200,000 vehicles. This is likely to adversely affect the growth of EV sales in the US in 2020.

The area of the world that seems to have a significant chance of a major uptick in EV sales in 2020 is Europe. This increase is possible because governments there are still giving sizable subsidies to buyers of such cars. If, in future years, these subsidies become too great a burden for European governments, EV sales are likely to lag there as well.

[6] Oceangoing ships are required to use fuels that cause less pollution as of January 2020. This change will have a positive environmental impact, but it will lead to additional costs which are impossible to pass on to buyers of shipping services. The net impact will be to push the world economy in the direction of recession.

If oceangoing ships use less polluting fuels, this will raise costs somewhere along the line. In the simplest cases, oceangoing vessels will purchase diesel fuel rather than lower, more polluting, grades of fuel. Refineries will need to charge more for the diesel fuel, if they are to cover the cost of removing sulfur and other pollutants.

The “catch” is that the buyers of finished goods and services cannot really afford more expensive finished goods. They cut back in their demand for automobiles, homes, cell phones and paved roads if oil prices rise. This reduction in demand is what pushes commodity prices, including oil prices, down.

Evidence that ship owners cannot really pass the higher refining costs along comes from the fact that the prices that shippers are able to charge for shipping seems to be falling, rather than rising. One January article says, “The Baltic Exchange’s main sea freight index touched its lowest level in eight months on Friday, weighed down by weak demand across all segments. . .The Index posted its biggest one day percentage drop since January 2014, in the previous session.”

So higher costs for shippers have been greeted by lower prices for the cost of shipping. It will partly be ship owners who suffer from the lower sales margin. They will operate fewer ships and lay off workers. But part of the problem will be passed on to the rest of the economy, pushing it toward recession and lower oil prices.

[7] Expect increasingly warlike behavior by governments in 2020, for the primary purpose of increasing oil prices.

Oil producers around the world need higher prices than recently have been available. This is why the US seems to be tapering its growth in shale oil production. Middle Eastern countries need higher oil prices in order to be able to collect enough taxes on oil revenue to provide jobs and to subsidize food purchases for citizens.

With the US, as well as Middle Eastern countries, wanting higher oil prices, it is no wonder that warlike behavior takes place. If, somehow, a country can get control of more oil, that is simply an added benefit.

[8] The year 2020 is likely to bring transmission line concerns to the wind and solar industries. In some areas, this will lead to cutbacks in added wind and solar.

A recent industry news item was titled Renewables ‘hit a wall’ in saturated Upper Midwest grid. Most of the material that is published regarding the cost of wind and solar omits the cost of new transmission lines to support wind and solar. In some cases, additional transmission lines are not really required for the first additions of wind and solar generation; it is only when more wind and solar are added that it becomes a problem. The linked article talks about projects being withdrawn until new transmission lines can be added in an area that includes Minnesota, Iowa, parts of the Dakotas and western Wisconsin. Adding transmission lines may take several years.

A related issue that has come up recently is the awareness that, at least in dry areas, transmission lines cause fires. Getting permission to site new transmission lines has been a longstanding problem. When the problem of fires is added to the list of concerns, delays in getting the approval of new transmission lines are likely to be longer, and the cost of new transmission lines is likely to rise higher.

The overlooked transmission line issue, once it is understood, is likely to reduce the interest in replacing other generation with wind and solar.

[9] Countries that are exporters of crude oil are likely to find themselves in increasingly dire financial straits in 2020, as oil prices stay low for longer. Rebellions may arise. Governments may even be overthrown.

Oil exporters often obtain the vast majority of their revenue from the taxation of receipts related to oil exports. If prices stay low in 2020, exporters will find their tax revenues inadequate to maintain current programs for the welfare of their people, such as programs providing jobs and food subsidies. Some of this lost revenue may be offset by increased borrowing. In many cases, programs will need to be cut back. Needless to say, cutbacks are likely to lead to unhappiness and rebellions by citizens.

The problem of rebellions and overthrown governments also can be expected to occur when exporters of other commodities find their prices too low. An example is Chile, an exporter of copper and lithium. Both of these products have recently suffered from low export prices. These low prices no doubt play a major part in the protests taking place in Chile. If more tax revenue from the sales of exports were available, there would be no difficulty in satisfying protesters’ demands related to poverty, inequality, and an overly high cost of living.

We can expect more of these kinds of rebellions and uprisings, the longer oil and other commodity prices stay too low for commodity producers.


I have not tried to tell the whole economic story for 2020; even the energy portion is concerning. A networked self-organizing system, such as the world economy, operates in ways that are far different from what simple “common sense” would suggest. Things that seem to be wonderful in the eyes of consumers, such as low oil prices and low commodity prices, may have dark sides that are recessionary in nature. Producers need high prices to produce commodities, but these high commodity prices lead to finished goods and services that are too expensive for many consumers to afford.

There probably cannot be a “one-size-fits-all” forecast for the world economy. Some parts of the world will likely fare better than others. It is possible that a collapse of one or more parts of the world economy will allow other parts to continue. Such a situation occurred in 1991, when the central government of the Soviet Union collapsed after an extended period of low oil prices.

It is easy to think that the future is entirely bleak, but we cannot entirely understand the workings of a self-organizing networked economy. The economy tends to have more redundancy than we would expect. Furthermore, things that seem to be terrible often do not turn out as badly as expected. Things that seem to be wonderful often do not turn out as favorably as expected. Thus, we really don’t know what the future holds. We need to keep watching the signs and adjust our views as more information unfolds.

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About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.

1,162 thoughts on “Expect low oil prices in 2020; tendency toward recession

      • It is interesting that this last forbes link is an article by Micheal Lynch!!!?? I am not sure if you are an oil drum viewer from the past or peak oil etc….but Lynch has made his money talking hopium for years about how much oil etc there is ripe for the pickens!! I would even say he is not very far from the abiotic oil people!!

        • Denial, how interesting. I went down the peak oil rabbit hole not long before The Oil Drum went defunct, so Michael Lynch is unknown to me in that capacity.

    • The Seeking Alpha article shows several interesting charts, include relatively low new orders and relatively low purchased on large trucks.

      It remarked that Federal Receipts are unsteady since 2015. I printed out this chart showing quarterly (a) State and Local Receipts and (b) Federal Receipts using the same FRED system.

      The state and local receipts are a lot more stable than the federal government receipts. I know that in the State of Georgia, where I live, there have been state government cutbacks because tax rates were mistakenly lowered, in the belief that the federal tax changes would be beneficial, so lower tax rates would be appropriate. Now it is clear that the state needs to cut back, to stay within budget.

      I also put together another chart, to try to figure out why total US government receipts look so strange. This chart compares total receipts to “Federal Government Current Tax Receipts.”

      The current tax receipts look amazingly flat since the beginning of 2015. I expect that things that are not specifically income tax (such as royalties on oil extracted, social security and medicare funding, student loan repayments and tariffs on imported goods) are in the difference. Also, if tax adjustments are made to prior years, these would also be in the difference. The big spike is in the 4th quarter of 2017.

      Very flat tax receipts aren’t what a person would expect with a growing economy.

        • This is the Cass Freight Index chart shown on its website.

          December 2019 has fallen below any of the preceding years on the chart, in quantity shipped. If this pattern continues, there is a clear problem.

          Another chart shows that on a revenue basis, December 2019 was only the second worst. There seems to have been an increase in shipping charges a couple of years ago, keeping revenue high the last two years. I remember that about two years ago, monitoring devices were added that kept drivers from working more hours than permitted by safety rules. As a result, they could drive fewer hours. More trucks were required to ship the same amount of goods. Drivers were paid based on miles not hours, so their wages fell. More trucks to deliver the same goods, so more fuel for shipping and more payments for trucks. Wages spread over more drivers. Trucking companies needed to charge more, with the use of more trucks for same amount of goods.

  1. Adding a thought to the religious discussion:

    I guess we can all agree on similar social duties and a humanistic image of man. My atheist point, though: If you don’t clean up your room, you can’t blame God for it!

    Abrahamitic religions demand uncontrolled population growth, Muslims in the Middle East, Christians in Africa. In the historical European Migration Period people clearly exceeded carrying capacity. Wars and raids (Vikings!) followed. Is there a connection to christianisation’s ‘be fruitful and multiply’?

    There is a hint: John M. Riddle (Contraception and Abortion from the Ancient World to the Renaissance) shows that pre-christian women did successfully used family planning with effective herbs. A knowledge lost in the Middle Ages.

    That means human OVERSHOOT IS NOT INEVITABLE – with all biological and economical implications! At least pre-christian societies successfully managed to prevent it. It was knowingly prevented, not tragically enforced by recource limitations.

    That indicates that human population growth is not merely a function of fossile fuels. The overshoot thinkers (Malthus) were blinded by their own religious morals. Maybe it is time that members of the Abrahamitic confessions re-evaluate if their god really demands ininhibited population growth contradicting all reason – reason that is also given by God!

    Otherwise it might fuel a very unholy self-fulfilling prophecy of the revelation. Revelation has been delayed for so often now! Wouldn’t it be more human to delay it another few thousand years? In history the prophecy of the revelation had a social function (Georges Minois, Prophecies): To correct decadent rulers – Calvin did, Luther did. Maybe thats a better view than the Hollywood version.

    • you’re wishing to close the gate after the horses have left. interesting about the contraceptive use of effective herbs that was lost in the Middle Ages.

          • Sorry, no. Mars is deserts, canals, abandoned cities, and impossibly cute egg laying princesses. Just watch out for the twelve foot green nomads.

      • With even modest growth rates in about 400 years humankind would be a solid ball of bodies expanding outward faster than the speed of light. You just can not beat an exponential.

    • It would be helpful to mention the pre and post interest charging period of medieval Europe. That changed a lot, also cleared way for the “reformation” you mentioned.

      As well as the later junction at which CBs took over in the core IC hubs ~17-18th century onwards. And after that we had the ~200yrs hockey stick of fossil fuel bonanza.
      Evidently, multiple steps leveraging and mutating each other brought us here..

      So, it’s doubtful it will go down in one simple swing (yes the down slope will be likely and noticeably quicker though), lets posit the 1970s was the first big saturation-exhaustion discontinuity point/period on unchecked growth out of many incoming (next tilting from plateauish to collapse proper profile) on the ~midterm horizon future..

    • First, lets move away from Abrahamic religions. There are lots of non-Abrahamic religions. Some of them have preached killing of infants to keep population down. You can find whatever teaching you look for. Religions are adapted to the situations of the day. They differ. It is a little late to complain now about practices that may have made sense back at the time that they were originally put in place. Just move on. Find a religion that has beliefs more akin to what you want to believe. If you want to believe that Central Bankers, with their Hocus Locus, can save the world, so be it.

      Second, “OVERSHOOT IS NOT INEVITABLE,” is not really right. We are way past the world’s carrying capacity without fossil fuels right now. Many, many post civilizations have collapsed.

      One of the warnings in Revelation in about Collapse. Read Revelation 18.

      10 Terrified at her torment, they will stand far off and cry:

      “‘Woe! Woe to you, great city,
      you mighty city of Babylon!
      In one hour your doom has come!’

      11 “The merchants of the earth will weep and mourn over her because no one buys their cargoes anymore— 12 cargoes of gold, silver, precious stones and pearls; fine linen, purple, silk and scarlet cloth; every sort of citron wood, and articles of every kind made of ivory, costly wood, bronze, iron and marble; 13 cargoes of cinnamon and spice, of incense, myrrh and frankincense, of wine and olive oil, of fine flour and wheat; cattle and sheep; horses and carriages; and human beings sold as slaves.

      14 “They will say, ‘The fruit you longed for is gone from you. All your luxury and splendor have vanished, never to be recovered.’

      • I always thought it was interesting that there was ‘no one to buy their cargoes anymore’. It wasn’t simply the case that there wasn’t stuff to sell. There were simply no or not enough buyers to keep the gig going. Kind of like what we see now. Consumers are tapped out.

        • This is an “on the ground” look at what collapse looks. Sometimes we have to look at old documents to see how past problems appeared.

          All of our Peak Oil friends had good imaginations regarding the problem ahead.

    • India and China are famously populous countries, and yet are not dominated by Abrahamic religions.

      The population of any animal (humans included) is a function of available resources, with food supply usually being the most limiting factor. Anything that causes more food to be available (e.g. agricultural improvements) will result in a population increase. This also means that it is impossible to solve the problem of world hunger by growing more food.

      • i THINK IT’S A VERY BAD USE OF NATURAL TREASURE TO GROW FOOD AT SCALE, ON OPEN LAND. I can see instead surgical and minimalist food growing for the local marketplace. If you grow food without clearing land, confining it to pockets between existing vegetation (or on roofs or other urban infrastructure), that might well correlate to moderating population growth?

    • “That means human OVERSHOOT IS NOT INEVITABLE” HUH? Already occurred. Your saying the glass breaking when it drops is not inevitable when its already in a thousand pieces on the floor.

  2. Is our climate model correct? This 1 hour video argues otherwise:

    As I learned in Systems Engineer school, “All models are wrong, but some are useful.” The two key pitfalls they face are incorrect assumptions and missing elements/sub-systems.

    Firstly – assumptions: The assumptions made in the IPCC 5th Report are that carbon emissions will keep on increasing if we don’t take action – i.e. they fall between RCP6.5 and RCP8.0 on page 9 of the report – https://www.ipcc.ch/site/assets/uploads/2018/02/SYR_AR5_FINAL_full.pdf

    To me, that is an unvalidated assumption – China contributes to a large part of the earth’s carbon emissions and we see that their fossil consumption is stalling.

    Secondly – Missing elements: The video makes the argument that climate scientists have only studied thermal exchanges, thus it has led them to vastly understate the sun’s influence on warming and cooling the earth (by omitting its particle and electromagnetic effects). Currently the sun is in solar maxima, which combined with our high rate of co2 emissions increases surface temperature on earth (with all of the ill effects therein). However, the sun will not always stay at solar maxima, as it enters solar minima there is potential for drastic cooling.

    Perhaps the future looks something like increased global warming for the next 20 years, but then global cooling for the next 200?

    • There is also the issue that the modeling exercises assume that it is possible for the world to continue to extract a growing amount of fossil fuels (particularly coal), in the years ahead. With this growing amount of fossil fuel use, business as usual is able to continue indefinitely.

      This assumption is what most people would like to believe, but it is not the way economies really behave. Economies collapse, essentially from too much wage and wealth disparity, as “complexity” increases. Too few of the workers in the economy can afford the output of the economy. The government makes too many demands on resources, leaving too little discretionary income for citizens. Economies fail in many different ways: in battles for resources with other countries; with dissatisfied workers overturning the government; with rising death rates from disease; in financial collapses; in peaceful dissolutions of top levels of governmental structures (such as central government of the Soviet Union in 1991, or the European Union in the future).

      With growing complexity, the low wages of many workers means that a large share of the population cannot afford new homes, vehicles, washing machines, cell phones, and many other modern conveniences. With fewer purchases of end products, commodity prices fall rather than rise. The falling prices of commodities is thus added to the list of issues that brings about collapse.

      Economists are in denial regarding how the economy actually works. The amounts of fossil fuels consumed in climate change scenarios are basically impossible. The model evaluates future “scenarios,” but these future scenarios are extremely unrealistic scenarios. There is no way that these amounts of fossil fuels can be extracted; fossil fuel prices don’t rise high enough.

      With these absurd scenarios as a base, the scenarios presented to the public are likely to also be absurd, regardless of how “correct” the underlying model is.

      • “Economists are in denial regarding how the economy actually works. The amounts of fossil fuels consumed in climate change scenarios are basically impossible. The model evaluates future “scenarios,” but these future scenarios are extremely unrealistic scenarios. There is no way that these amounts of fossil fuels can be extracted; fossil fuel prices don’t rise high enough.”

        Gail, you have elaborated good reasons, why a recession could be ahead, that could ultimately lead to a collapse of the industrial civilisation as we know it. However, after such a collapse there is still a huge amount of fossil fuels (FF) in the ground with an EROEI well above 1. As long as this is the case, I think the “maximum power principle” will ensure that humans will try to extract FF under new circumstances – whatever it costs – in order to lever their muscle power for essential things of life – particularly think of agriculture and transport. Nate Hagens explains the “energy benefits” of FF in part 3 of his video series:

        At around 4 min into the video Nate mentions that oil at 20$ per barrel can do the work of 25833 average americans, oil at 75$ per barrel can do the work of 7045 average americans, – my extrapolation: oil at 150$ per barrel would still do the work of 7045/2 = 3522 average americans. That’s very tempting. Therefore, I am not so sure that CO2 – emissions will effectively stop after a collapse. Of course, as EROEI proceeds down towards 1, the more frivolous activities of humans can no longer be maintained after a collapse and will be dismissed.

        • The real question is what EROI ratio is needed to have enough surplus to provide enough order to extract and distribute energy sources. Order commonly provides our assurances of some permanence and stability.

          I feel Libya is a good example. Libya probably has a 60 to 1 eroi or better. After the NATO intervention the system which extracted and distributed the wealth from oil was ended. The new system cut some people out. They promptly engaged in some destructive activities and were cut in again.

          With a 60 to 1 EROI there was enough surplus that it was n everyones advantage to not disrupt the system of distribution.

          The tribes that demanded their cut new that the surplus EROI existed. They had just gotten it prior to the intervention. In there minds if they didnt get that it was because someone else did. And in that case it was the truth.

          So what are the forms of surplus that populaces know exist? Pensions and SS. Medical and dental services. Police and criminal justice systems. Food and water. Sanitation.

          As long as a certain amount of surplus is distributed to the people they will tolerate less without creating disruption assuming they understand that disorder will end all surplus distribution. If their idea is that there exists a large mount of surplus that is being held from them they will be less likely to not create disorder.

          What happens if EROI surpluses are reduced not because some one else is getting it but because its not there because of eroi ratio reduction?

          Another good example is Iran. The people understand on some level energy distribution can not occur if they are bombed into the stone age. Once again no change in EROI ratio just how its distribution might change.

          The UN food distribution in somalia being taken by warlords is a another example. And this is with a functioning EROI providing limited order via UN troops.

          I think its fair to say the military would provide order enough to continue their own energy use.
          As far as citizens getting some share of the remaining EROI surplus that might well be dependent on the amount of disorder. If it took all the remaining surplus to have enough order to distribute the surplus theres nothing left to distribute. So the distribution scope would be reduced and SOME GET CUT OUT.

          Do they have the capability of having creating enough disorder to stop ANY EROI distribution? Probably not. But at some point the energy required to provide security for the distribution system might not exist. Things would continue to tighten with security providers looking after their needs first. As more areas existed with disorder the remaining areas would need more energy to keep secure. At some point those distributing can only look after their own needs not distribute.

          Since what allows the extraction to occur is networked systems the failure point comes much much sooner as security is not able to provided for areas that are essential to the network fall into disorder. Even extraction itself as we know it comes to a end eventually as networked systems fail to provide essential infrastructure

          There will be some improvised local extraction at the resource location and local security. At some point it just is not worth it. Maintaining order for high EROI resource extraction takes more energy than is extracted. Voila Energy sink. Continuance depends on Quantity not quality of low eroi sources at that point. Very hard hunter gatherer learning curve.

          We really dont know what EROI 30 would be like, At some point we would just have energy surplus distribution failure. That EROI failure rate would be far in excess of 1 ten being the best guess of pundits. I consider an EROI of ten allowing some continuance of order very optimistic.

          This situation is occurring with international EROI still well above 60 and all networked systems functioning well if not as well as the past.

          It would be different if they had high EROI energy or were needed for a crucial network.

            • Gail taught me everything I know. I just apply her analysis now and then. Probably without much insight. Her analysis is the only one that fits observed events.

              Its pretty funny. I use the word funny loosely. Because society has the freedom to reject things they dont “like” this blog has very little following. Gails brilliant analysis sits in this tiny blog largely ignored, available to all, rejected by 99.999999999999999999999999999%.

              Imagine if one of the candidates suddenly presented the ideas here in the debates. The condemnation would be universal, and robust. I would truly enjoy seeing that. Guess I have a taste for drama after all. 🙂

        • I think you are assuming that EROEI of 1:1 for fuels means something different than it does.

          EROEI is pretty well defined for animals. It related to the energy that they have to expend to catch their prey, and perhaps bring it back to where they eat it and feed it to their families. Animals cannot spend very much of their energy in food-related activities, or the population of such animals will collapse. They certainly cannot spend all of their energy gathering food. In fact, they cannot spend very much of it on gathering food, because they need their energy from food for keeping warm, for operating their muscles, for providing enough energy for their reproductive system, and for providing the energy they need to care for their young after they are born. They probably can spend only a very small percentage in food gathering activities.

          If a person is growing food for himself and his family, we can talk about what share of the family’s energy goes into food production and into gathering fuel for cooking the food. Maybe we need to include fetching water as well, since this is another necessity. If women spend most of their lives fetching water from distant streams, this becomes a problem. People clearly need time for sleeping and for raising a family. We can probably figure out some sort of ratio of calories of work expended associated with food and water necessities compared to total hours in the week. This cannot rise too high, or the population will collapse.

          We could also talk about a return on human labor in terms of wages. Are wages falling too low for unskilled workers? Such a problem could be called a problem of low Return on (Human) Energy Invested.

          I don’t think that the concept of “Energy Return on Energy Invested” works nearly as well for fuels, as it does for animals of various kinds and for humans. The 1972 Limits to Growth model used something similar to an EROEI (across all materials) calculation in its model. The 1972 modeling seemed to show that EROEI of this type could not fall (in the aggregate) below 20:1, or the system would begin to collapse. (5% input relative to output)

          In a sense, what is really needed in order to be able to build wind turbines is a whole economy that will allow wind turbines to be built and their output used. But it is impossible to figure out how much energy this requires (other than to look and see how much is currently being used for this purpose today.) Such an economy should be able to provide advanced education to workers who design and build wind turbines. Such an economy needs huge road, huge trucks, and huge ships for transporting parts. It needs an international trade system that allows the manufacture and trade of all of the parts that go into the wind turbine. It needs factories that make parts for wind turbines. It needs helicopters for repairing broken wind turbines (especially at sea). The workers in the system need transportation to work. They need medical care. They need clothing. If electricity from the wind turbines are ever to be used for anything else, there need to be electricity transmission lines, and workers to keep those lines in good repair. There needs to be fire protections, so that burning forests under these transmission lines don’t cause a problem.

          Needless to say, graduate students (or others computing EROEI) cannot possibly measure all of the energy going into manufacturing and transporting the wind turbines to the final destination of where the wind energy is used. Instead, they are given rules defining what limited pieces they should consider in their calculations, such as the energy used to make the blades and the other parts of the system. But there is a whole lot that is hard to figure out, so it is just left out, or just defined away as “not in the boundaries of what we measure.”

          So if we come to an EROEI of 20:1 for a wind turbine, it looks like we have 19 times as much out as went in. Except, we really have no idea how much went in, in total. And the energy out was of a much lower quality than went in. So a person is badly misled if they think that an EROEI of 1:1 is anything that is possibly attainable. What is measured by the “Energy Invested” in EROEI is basically the easy-to-count piece. There is one paper that talks about a modern economy seeming to need an EROEI of 10:1 to function. The rest of the energy is needed for the many other functions of the economy, such as transportation and home heating.

          Apart from the issue of EROEI of 1:1 not being something that tells us much about how much energy is available, there is a real problem in going backward. We can’t go back to horse and buggy now, for example, because we don’t have enough horses, and our cities aren’t built to accommodate the huge number of horses needed. We don’t have land set aside to feed these horses either.

          Whether we fossil fuels are very helpful or not, fossil fuels are leaving us through low prices. The prices are so low that producers of oil, coal and natural gas are driven into bankruptcy. The only reason that wind and solar can exist is because of the huge subsidies they are being given. The subsidy of going first is an amazingly large subsidy; our system really needs 24/7/365 electricity, and wind and solar do not provide it. Also, the cost of their needed transmission is not charged back.

          • So isn’t it advantageous to keep all existing fossil fuel resources functioning? Rather than talk about renewables? That would present a huge information, political, educational emergency, but not so much one of adding unforeseen costs?

            • Pseudo -‘Renewables’ (ie just an additional ‘Green’ hi-tech complexity layer and resource- consumer) will be next to useless, and even destructive: but – in the very short term – huge fortunes will be made out of them. It’s the whole story I suggest behind the Renewables (TM) drive: totally corporatised.

            • Lots of tax credits for big profitable corporations in the US! A big chunk of the cost of renewables is hidden in reduced corporate tax collections, with practically no one the wiser!

            • Amen to that, Xabier. The bulk of the populace has been suckered into believing that “green/sustainable” equals “at no environmental cost”.

              “Wind farms installed offshore to tackle climate change are actually threatening thousands of endangered seabirds around the UK, according to the RSPB. The bird charity says new wind farms could be the ‘final nail in the coffin’ for more than 1,000 birds across four of the most threatened species.”


            • «There is one paper that talks about a modern economy seeming to need an EROEI of 10:1 to function»
              Would you mind letting us know where to find this paper, Gail?

            • This is an interview with Charles Hall that says something to this effect.

              If you’ve got an EROI of 1.1:1, you can pump the oil out of the ground and look at it. If you’ve got 1.2:1, you can refine it and look at it. At 1.3:1, you can move it to where you want it and look at it. We looked at the minimum EROI you need to drive a truck, and you need at least 3:1 at the wellhead. Now, if you want to put anything in the truck, like grain, you need to have an EROI of 5:1. And that includes the depreciation for the truck. But if you want to include the depreciation for the truck driver and the oil worker and the farmer, then you’ve got to support the families. And then you need an EROI of 7:1. And if you want education, you need 8:1 or 9:1. And if you want health care, you need 10:1 or 11:1.

              This is an article published in Energies in 2009 that talks about the issue: What is the Minimum EROI that a Sustainable Society Must Have?

              According to it,

              Thus by both economic (Figure 1) and energetic (i.e. assuming an EROImm of 10:1) measures calculated here it appears that at present roughly 10 percent of our economy is required to get the energy to run the other 90 percent, or 20 percent used to get 80 percent to the point of delivery, and even a larger percentage if the use infrastructure is included. This seems to be true if numerator and denominator are in either dollars or in energy.

            • ” a person could argue that more renewables leads to more demand for fossil fuels to build those renewables.”

              As I understand it, it’s not just the raw fuels and their emissions that’s a problem, it’s also limits to natural resources–land, water and vegetation, especially–that cost in some way, and add complexity when you remove their free services.

              What we seem to need instead is radical reduction in fossil fuel dependency AT THE SAME TIME that existing fossil fuel mines are busily employed (They don’t require new roads or new lands, since they are already using existing ones,.

              Somehow or other, financial considerations necessitating (financial?) growth have to kept within bounds (however that is to be done.)

              Then it wouldn’t be a case of stopping fossil fueled civilization; it would be a case of adding a scarce or fossil fuel civilization AT THE SAME TIME. The case has been made repeatedly that a globally networked, centralized economic system can’t work, if for no other reason that the earth’s living systems can’t sustain such a civilization.

              So rather than think always in centralized, networked, top down terms (WHICH WOULD SEEM NECESSARY AT SOME LEVEL IN STRATEGIC WAYS) we can also be returning to old less fossil fuel hungry technologies IN CERTAIN PLACES. Not suggesting that the whole entire world would need to adapt to that. That’s the point., There must be diversity within a single planetary oversight system. What ain’t brooke doesn’t need to be fixed. Tribal people living on breastfeeding don’t need formula milk so the current growth system can continue to grow. The earth’s living systems can’t afford that. Arguing that growth and destruction are what keep us from collapsing is a circular argument. Something has to change. Dictatorships that can pull this off are very much in order.

            • Maybe there isn’t anything that keeps economies from collapsing. People who are alive want to continue to live. The use of fossil fuel and other resources helps make this possible. They also want to have families. Food production is needed at somewhat above a bare minimum, simply to prevent collapse in the case of bad year weather-wise. Couples need to have children, to assist them in their efforts and to help them in their later years. World population continues to grow, largely because of humans’ use of supplemental energy in addition to energy from food. Growing population means that more of everything is needed just to sustain the existing population.

              It is hard to have enough jobs in a shrinking economy. There is no need for new buildings; just fix up what exists. The same for roads. The number of teaching jobs shrinks.

            • So if renewables present a way to use more fossil fuels that we know coincide with the earth’s various limits, maybe we needn’t waste time trying to stop that. Limits of various sorts will do that eventually. Renewing or continuing old mining sites is also a way to produce more fossil fuels, but with the advantage of not causing more incidental and unjustified costs. But I would think that a parallel low-carbon substrate of the overall economy would be thrown into the mix. That could occupy some of us who, under no circumstances, want to cut down more forests and dig up more land. (The fact that others will do that, and that this will have some advantages shouldn’t deter us from finding a way not to do this along with them.)

            • “There is one paper that talks about a modern economy seeming to need an EROEI of 10:1 to function»
              Would you mind letting us know where to find this paper, Gail?”

              Well i think the classic round these parts would be Ugos seneca cliff article. https://www.resilience.org/stories/2014-12-09/fossil-fuels-are-we-on-the-edge-of-the-seneca-cliff/
              Not a true “paper” though

              theres also a couple other guesses out there. Pretty tough to guess considering much everthing uses fossil fuels. All in the minimum eroi for industrial civilization 10 ballpark


              That you need 3 to 1 EROI to get it out of the ground and to the refinery door is pretty much established with less tough guesses

          • Dear Gail

            You say “graduate students (or others computing EROEI) cannot possibly measure all of the energy going into manufacturing and transporting the wind turbines to the final destination of where the wind energy is used”.
            I am not so sure about that. Why not simply use the total amount spent on raising the wind park and then add about 15 % to this amount as operation and maintenance through the life time of the park?
            There is a very close connection between money and energy which you have shown at various occasions.
            I would like to use a practical example to demonstrate what I mean. I could use every wind park in the world as example but once again I would use Anholt Vindmøllepark because I know the exact price of it.
            It cost 10 billion DKK to build and to establish the main lines to the shore extra 1 billion DKK should be added. That should be 11 billion DKK. Then you have to add 15 % (or maybe even 20 %) in operation and maintenance and you end up with approximately no less than 12 billion DKK.
            We have an entity called Nord Pool – it is a cooperation between Nordic countries where you buy and sell MWh to variable spot prices. Today (16-01-2020) the price per MWh is 24,52 EUR which corresponds to DKK 0,18 DKK per kwh. But in order to “anticipate” raising prices I will in the following set future prices at 0,25 DKK on this spot market.
            Instead of building the wind farm – which in its lifetime (here in this example 25 years) will cost no less than 12 billion DKK – you could buy electricity on the Nord Pool spot market and get 48 billion kwh for these 12 billion DKK. Anholt Vindmøllepark will in its function time deliver max 44 billion kwh. As I see it, already at this stage the park runs with a deficit in kwh.
            I am quite sure that other wind parks can do much better but there will never be any energy surplus if you also include costs of auxiliary power stations that must always be at disposal and many other disadvantages which you so often have defined.
            But again Gail “graduate students (or others computing EROEI) cannot possibly measure all of the energy going into manufacturing and transporting the wind turbines to the final destination of where the wind energy is used”.
            I think they can – just follow the money and compare.

            • Wages alone introduce uncertainty. Wages for labor are part of the cost of any product. If they are spent on a diesel truck and fuel that means a lot more energy is associated with those wages than say a undeveloped piece of property. Does the energy cost of the the product get tacked on too the er oi of the product the worker is making or that which he spends it on? Regardless none of it works without a lot of fossil fuel energy spread about everywhere. So called renewables will nor provide that and the energy cost associated with them will be a huge waste if this green economy BS ever trys to get implemented. Trying to bail the titanic with a green teacup.

            • “Trying to bail the titanic with a green teacup.” That is a good way of putting our problem.

              EROEI studies don’t count the wages of workers, unless they are based on the total cost of the wind turbine, as Niels Colding is suggested. I agree that quite a bit of a worker’s wages is spent on energy related items. It is the whole system that uses energy.

            • You make a good point. The expected total cost of wind turbines (12 billion DKK) would buy about 48 billion kWh, while the wind turbines themselves would produce only 44 billion kWh. Thus, there is already a deficit, looking at the pieces you are looking at.

              You point out that this does not include the impact on auxiliary power stations, either.

              I would point out a few things that tend to make the comparison even worse than you suggest.

              Paul-Frederik Bach writes about increasing curtailments of West Denmark wind electricity, because of inadequate transmission to handle all of the variable electricity. Of course, new transmission from Denmark to other countries are being built to try to keep up.

              Paul-Frederik Bach also writes about the difficulty in using additional wind power for Germany. He mentions

              -Surplus of wind power in the north
              -Large consumption of electricity in the south
              -Insufficient grid capacity for power transmission from north to south
              -A single price electricity market preventing the market from solving the problem

              He also mentions a more than 15 year lead time on new power lines in Germany. I understand that some of them will be buried underground, making them very expensive. Needless to say, all of these additional power lines within Germany really need to be included in the cost as well, if Germany is to use this electricity

              There are other details. The price of Power Purchase Agreements offering intermittent electricity for sale seems to be falling, rather than rising, in the US. The price of contracts to buy intermittent wind energy has been reported to be generally below $20 MWh in 2017 and 2018. The wholesale price you quote of 24,52 Euros per kWh is equivalent to 27.34 in US$. Your selected future price is higher than this.

              Paul-Frederik Back reports that Denmark is caught in the middle. Its spot prices for wind tend to be low. It is charged an increasingly high price for imported electricity, when there is a shortfall. At the same time, the amount it can sell excess wind for is far below the electricity spot price. Needless to say, adding more offshore wind will simply make this situation worse.

              P-F Bach suggests that wind developers may need to subsidize long distance transmission from Denmark, if more wind is to be added. New lines, if added, will be lightly used most of the time, making it hard to charge enough using conventional charges.

              Another issue is the fact that, as more transmission lines are added (for example, from Norway to the UK), Norway and Sweden’s balancing capacity becomes exceeded. At such a point, it seems like curtailment may become the only option, unless there is a whole lot more transmission to the rest of Europe than there is in place today.

            • “People who are alive want to continue to live. The use of fossil fuel and other resources helps make this possible.”

              One can’t argue there, but the fact that we need fossil fuels and other resources to live doesn’t suggest HOW we need to use them. Some people have a more survivable way to use them than others. All humans are not exactly the same, and all their actions don’t lead to exactly the same ends. I know, I know, there’s the need to dissipate energy as quickly as possible. Even if that is so, do the results have to end up exactly the same? No matter what anyone or any group does the energy runs out in the middle of 2040. Or if not, the difference is negligible.

              “World population continues to grow, largely because of humans’ use of supplemental energy in addition to energy from food. ”

              There are some points of Therbergian philosophy that aren’t consistent with each other.

              1) There is a power beyond the human that shapes events (even if not entirely)

              2) We think this way on account of how small and humble beginnings grow as if they had a mysterious power promoting them.

              But what if all this power needs to jump in was one’s effort? No start, no higher power at work.

              “World population continues to grow, largely because of humans’ use of supplemental energy in addition to energy from food. ”

              One way in which population growth can be tempered is through educating women (although there is a Therbergian meme that women should get out of the work force and leave it to men).

              The economy shrinks, so there are no jobs building homes or paving roads. But now very heavy machines do much of the work building homes, using heavy materials that huge trucks must haul in with a single driver. But a different way to build homes could use nearby materials and far more intensive human labor, and that labor could be very largely local.

              When we don’t take advantage of such potential shifts to economic custom, could that help to dampen the demand that the economy needs in order not to collapse?

  3. “The Fed is reportedly considering completely overhauling the current repo market and instead begin allowing the repo market clearinghouse, the Fixed Income Clearing Corp. (FICC), to lend directly to small banks and hedge funds. This change would essentially eliminate the larger bank middlemen from the process and provide a direct source of overnight loans for small banks…

    “However, providing wealthy hedge fund managers with a direct path to Fed lending via the FICC might not sit will with the average American. The prospect of a taxpayer-funded hedge fund bailout would likely trigger political backlash.”


      • I don’t quite understand this. Today, we have a short list of selected journals (Bloomberg, Reuters, etc) distributing economic numbers, in addition to the government, at the time of the announcement. In the future, the government website would be the only place available. This would remove the monopoly that Bloomberg, Reuters, etc. now have on news stories, so we might get a wider range of stories. It also would mean that the government website would need to be able to withstand more traffic to get the undigested data.

        • I am likewise puzzled. My initial assumption on skim-reading the article was that the government’s intent here must be sinister but now I am not so sure.

          • I am puzzled as well. First trying to say 30-60 minutes of the same data(apparently) is a huge change. *Biggest in decades*. First thing that comes to my mind is Bloomberg trying to protect the “semi-monpoly” and over-hype the headline.

            Though I can see people spinning this every which way from Sunday. Depending on the persons viewpoint.

            Overall seems like just a yawn to me. Like all too many headlines.


    • I wonder what rules this Fixed Income Clearing Corp. would have.

      Clearly, the FICC would benefit small US banks and hedge funds. But I would expect a lot of the problems are international. Does this mean that the US would back away from trying to fix international problems.

      Also, I wonder what the moral hazard in this is. If the FICC will always step in and bail a hedge fund or bank out, at a low interest rate, how much caution is needed?

      Could any rich individual (someone interested in real estate speculation, for example) set up their own hedge fund and be covered?

      • It smells like my prediction of the “Japanization” as in more direct – naked gov support under everything financial to be eventually phased in other key IC hubs as well.

        Internal logic of self preservation dictates that.
        Simply, just live for another day, more distant future dead end road of little concern.

      • I put it in because it makes the correlation between the advent of coal energy and the rise of democracy.

        Now that energy availability is fading, democracy is going with it

        • Interesting! Democracy generally takes more energy than a monarchy or other single leader. But people given an example of one or two early democratic forms of government, and claim that proves that energy supply really isn’t needed. That might be true for a few people in a small area, but not generally.

          • Gail, a good point, and one with which I agree. The Greek city states believed they were too large when the agora could no longer accommodate all the voting citizens (about 25% of the whole population). In early America, local democracy revolved around the “town meeting”, where again every voter could attend and participate.

            One solution is simple: don’t have big states. Well, Philip II of Macedon put paid to that idea at the Battle of Chaeronea in 338BC. Another solution is to restrict the franchise. I would certainly agree with a system that allowed people to vote only if they were citizens, owned real property, and had children; in other words, people with a real stake in the future.

            But these seem palliatives. Democracy seems necessary for only one reason: the State is far too powerful. A government that does as little as possible would not need checks and balances; the individual citizens, as individuals or in voluntary associations, would do the heavy lifting. And an armed citizenry could resist potential tyrants before they could accumulate power. It worked in Viking Iceland, did it not: the country with the oldest Parliament in the world.

            • the Greeks didn’t have a democracy

              their energy source was slaves and wives, neither of whom had any involvement in the process of government

              We’ve had a democratic system (of sorts) only since the advent of fossil fuels, particularly coal

              now that fossil fuels are on the way out, so is democracy

          • i think the reason for that is, that the leader–monarch, emperor whatever takes all the surplus energy for himself and his immediate buddies and his army, (if that sounds familiar don’t blame me). leaving less and less for everyone else

            we see it happening now, but it was equally true in France in 1780, and Russia in 1917

  4. Hahahaha, sure It’s OK to do Janet, because when it’s paid back the money to do so will
    be worthless paper digital dots on a screen….

    Former Fed chair Janet Yellen thinks it’s OK if the government adds to its $23 trillion debt load — although there are strings attached.

    “Even under current conditions, I think we can afford to increase federal spending or cut taxes to stimulate the economy if there’s a downturn,” said Janet Yellen, the former Federal Reserve chief, at the annual meeting of the American Economic Association, according to the Washington Post. “Chronic low interest rates create additional fiscal space.”

    Yellen said that gives policymakers more room to embark on ambitious spending that could juice the nation’s long-term economic development right now.

    “In a world of low real rates, there’s also a strong case for programs to invest in infrastructure, education, research and development, climate change mitigation — namely investments that would elevate potential growth,” Yellen said, according to the Post.

    It marks a shift in Yellen’s previous thinking about the national debt and the future budget outlook. In 2017, when the debt stood at $20 trillion and Congress debated the GOP tax cut legislation, she said mounting level of federal spending “should keep people awake at night.”

    The former Fed chair forms part of a growing collection of economists who believe that targeted spending in programs — even if it adds to the debt — may not be so harmful if it spurs growth in the long-run, especially in a competitive global economy. However, they do believe that type of deficit-spending should be paid back eventually.

    It underscores an evolving view of federal spending as low interest rates make it cheaper to finance government initiatives. Currently, the Fed’s benchmark interest rate stands around 1.75% as it was cut three times last year.

    Some experts criticized the Federal Reserve for hiking rates prematurely after the recession and holding back economic growth.

    The deficit in fiscal year 2019 neared $1 trillion, a 26% jump from the year before, swelled by the 2017 Republican tax cuts and rising government spending. The Congressional Budget Office projected last year the deficit will continue growing between 2020 and 2029.

    Some progressive economists, such as Gabriel Zucman and Emmanuel Saez of the University of California at Berkeley, have called for additional taxes on the rich to pay for hefty spending programs in healthcare and education.

    Both consulted with Sens. Elizabeth Warren and Bernie Sanders in designing their plans for a wealth tax on the most-affluent Americans.

    Read the original article on Business Insider

    • Oh my paws and whiskers, a wealth tax!. Tax salt (if you want to end up meeting Madame la Guillotine). Tax real property. Tax windows. Tax shirts. But this is the twenty first century, and if you try to tax wealth it will disappear at the speed of light. Good luck extracting those trillions from the Elon Musk First Bank of Mars.

  5. Phase 1 trade deal- meh
    January 15, 2020

    The United States and China signed the Phase 1 Trade Agreement today. Specific details of the trade agreement can be read on the USTR website. For U.S. importers, the primary concern remains the tariffs. As mentioned back in December, the Phase 1 trade agreement will have the following effect on the various Section 301 China tariffs:

    List 1, 2 and 3: Products subject to list 1, 2, or 3 will continue to be assessed a tariff of 25%. There is no change to this tariff.

    List 4A: Products subject to list 4A are currently assessed a tariff of 15%. This tariff will be reduced to 7.5%. We are anticipating details about the timeframe for this reduction to be published in the Federal Register sometime within the next week or so. Until we hear of a specific timeframe for the reduction, importers should continue to plan on paying 15% on their products subject to List 4A tariffs.

    List 4B: The list 4B tariff remains suspended.

    • This lifeline provided to US domestic manufs could be too late to actually matter.
      It certainly helped to disrupt the Chinese stealth and linearly progressing domination long term plans though. Nevertheless, Gail could be proven correct if the Chinese won’t cope and disintegrate before the US, which I still doubt, since I evaluate the “full spectrum deterioration” in the West as fairly (and relatively) advanced one..

      But I could be (very) wrong obviously..

    • Year are right. The tariff deal is not a big deal in terms of charges. But it covers over 90 pages. There are promises to buy more goods in the future, for example. People are happy to see something.

    • We’ve painted ourselves into a corner. Damned if we burn FF because of momentum of CC & damned if we don’t because world economy will falter.

      • It’s very true: people paint themselves in the corner by concentrating on the immediate task without thinking about where they are heading. That stands for our whole civilization.

    • The RMS Titanic was more than twice as big as any ship yet built. Its designers scaled everything up by a factor of two. This meant the ship had eight times the mass (and inertia), but the rudder had only four times the area. As a consequence, when her helm was put hard to port, she could not turn fast enough.

      Does that sound like the global economy today? Consider the problem as you watch “A Night to Remember”, the only good Titanic movie.

      • I agree.

        I think the transmission line problem is a little like the rudder problem.

        With renewables, the need for long distance transmission lines (and maintenance) scaled up to a far greater extent than the quantity of electricity added through intermittent renewables. The whole need for a great deal more long distance transmission has tended to be ignored, just like the need for a much bigger rudder.

        I think that there is another issue, however, if a great deal of new electricity transmission is to be provided. Who says that balancing is just to be for intermittent renewables? Can’t all electricity supplies be traded over a much bigger grid? Won’t differences in grid prices tend to even out, except at a higher overall level, to include the price of the new expensive grid?

        It would seem to me that the countries that would be at a disadvantage are the ones with relatively low baseload wholesale electricity rates now. These would be the countries in light blue, I would think. Source

    • “…central banks didn’t fix the 2008-09 financial crisis, they just covered over it and kicked the can down the road. Now the Fed is caught funding this repo market and they have had to inject $505 billion now since mid-September, with the latest injection a whopping $83 billion in early January. Peak QE was at $60 billion a month. This is averaging $127 billion, or more than double that!

      “…When do the alarms go off here? …you can’t keep pumping up a dead economy and financial system without creating bubbles that burst of their own extremes and losing control over a repo crisis like this.”


      • In the FXStreet article, Harry Dent is saying that the current run-up in stock prices is the direct result of all of the money being injected in the system through Treasury Bills and REPOs purchased by the Federal Reserve. He expects the stock market to crash, not too long after this activity is stopped.

        • therefore this activity will never be stopped…

          at least not voluntarily by the Fed…

          the real economy eventually may/will force these activities to end…

          perhaps in 1 or 2 months or years or decades…

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