COVID-19 and oil at $1: Is there a way forward?

Many people are concerned today with the low price of oil. Others are concerned about slowing or stopping COVID-19. Is there any way forward?

I gave a few hints regarding what is ahead in my last post, Economies won’t be able to recover after shutdowns. We live in a world with a self-organizing economy, made up of components such as businesses, customers, governments and interest rates. Our basic problem is a finite world problem. World population has outgrown its resource base.

Some sort of economy might work with the current resource base, but not the present economy. The COVID-19 crisis and the lockdowns used to try to contain the crisis push the economy farther along the route toward collapse. In this post, I suggest the possibility that some core parts of the world economy might temporarily be saved if they can be made to operate fairly independently of each other.

Let’s look at some parts of the problem:

[1] The world economy works like a pump.

To use a hand water pump, a person forces a lever down, and the desired output (water) appears. Human energy is required to power this pump. Other versions of water pumps use electricity, or burn gasoline or diesel. However the pump operates, there needs to be some form of energy input, for the desired output, water, to be produced.

An economy follows a similar pattern, except that the list of inputs and outputs is longer. With an economy, we need the following inputs, including energy inputs:

  • Human energy
  • Supplemental energy, such as burned biomass, animal power, electricity, and fossil fuel.
  • Other resources, including fertile land, fresh water and raw materials of various kinds.
  • Capital goods, built in previous cycles of the “pump.” These might include factories and machines to put into the factories.
  • Structure and support provided by governments, including laws, roads and schools.
  • Structure and support provided by business hierarchies and their innovations.
  • A financial sector to provide a time-shifting function, so that goods and services with future value can be paid for (in actual physical output) over their expected lifetimes.

The output of the economy is goods and services, such as the following:

  • Food and the ability to store and cook this food
  • Other goods, such as homes, cars, trucks, televisions and diesel fuel
  • Services such as education, healthcare and vacation travel

[2] Adequate growth in supplemental energy (such as fossil fuels) is important for keeping the economy operating properly.

The more human energy is applied to a manual water pump, the faster it can pump. The economy seems to work somewhat similarly.

If we look back historically, the world economy grew well when energy supplies were growing rapidly.

Figure 2. Average growth in energy consumption for 10 year periods, based on the estimates of Vaclav Smil from Energy Transitions: History, Requirements and Prospects (Appendix) together with BP Statistical Data for 1965 and subsequent.

Economic growth encompasses both population growth and rising standards of living. Figure 3 below takes the same information used in Figure 2 and divides it into (a) the portion underlying population growth, and (b) the portion of the energy supply growth available for improved standards of living.

Figure 3. Figure similar to Figure 2, except that energy devoted to population growth and growth in living standards are separated. An ellipse is added showing the recent growth in energy is primarily the result of China’s temporary growth in coal supplies.

Looking at Figure 3, we see that, historically, more than half of energy consumption growth has been associated with population growth. There is a reason for this connection: Food is an energy product for humans. Growing food requires a lot of energy, both energy from the sun and other energy. Today, a large share of this other energy is provided by diesel fuel, which is used to operate farm equipment and trucks.

Another thing we can see from Figure 3 is that peaks in living standards tend to go with good times for the economy; valleys tend to go with bad times. For example, the 1860 valley came just before the US Civil War. The 1930 valley came between World War I and World War II, at the time of the Great Depression. The 1991-2000 valley corresponds to the reduced energy consumption of many countries affiliated with the Soviet Union after its central government collapsed in 1991. All of these times of low energy growth were associated with low oil (and food) prices.

[3] Even before COVID-19 came along, the world’s economic pump was reaching limits. This can be seen in several different ways. 

(a) China’s problems. China’s growth in coal production started lagging about 2012 (Figure 4). As long as its coal supply was growing rapidly (2002 to 2012), this rapidly growing source of inexpensive energy helped pull the world economy along.

Figure 4. China energy production by fuel, based on 2019 BP Statistical Review of World Energy data. “Other Ren” stands for “Renewables other than hydroelectric.” This category includes wind, solar, and other miscellaneous types, such as sawdust burned for electricity.

Once China needed to depend on importing more energy to keep its energy consumption growth, it began running into difficulties. China’s cement production started to fall in 2017. Effective January 1, 2018, China found it needed to shut down most of its recycling. Auto sales suddenly starting falling in 2018 as well, suggesting that the economy was not doing well.

(b) Too much world debt growth. It is possible to artificially raise economic growth by offering purchasers of goods and services debt that they cannot really afford to pay back, to use for the purchase of goods and services. Clearly, this was happening before the 2008-2009 recession, leading to debt defaults at that time. The rise in debt to GDP ratios since that time suggest that it is continuing to happen today. If the world economy stumbles, much debt is likely to become impossible to repay.

(c) The need to lower interest rates to keep the world economy growing. If the world economy is growing rapidly, as it was in the 1950s, 1960s and 1970s, the economy is able to grow in spite of increasing interest rates (Figure 5). After energy supply growth slowed about 1980 (Figure 2), interest rates have needed to fall (Figure 5) to hide the slowing energy consumption growth. In fact, interest rates are near zero now, similar to the way they were in the 1930s. Interest rates are now about as low as they can go, suggesting that the economy is reaching a limit.

Figure 5. 3-month and 10-year US Treasury rates. Graph provided FRED.

(d) Growing wage disparity. Increased technology is viewed positively, but if it leads to too much wage disparity, it can create huge problems by bringing the wages of non-elite workers below the level they need to support a reasonable lifestyle. Globalization adds to this problem. Income disparity is now at a peak, around the level of the late 1920s.

Figure 6. U. S. Income Shares of Top 1% and Top 0.1%, Wikipedia exhibit by Piketty and Saez.

(e) Excessively low commodity prices, even before COVID-19 problems. With the world’s wage disparity problem, many workers find themselves unable to afford homes, cars, and restaurant food. Their lack of purchasing power to buy these end products tends to keep commodity prices too low for producers to make an adequate profit. Oil prices were already too low for producers in 2019, before lockdowns associated with COVID-19 were added. Producers of oil will go out of business at this price. In fact, other commodity prices, including those of liquified natural gas, copper, and lithium are all too low for producers.

[4] The COVID-19 problem, and in fact epidemic problems in general, are not going away.

The publicity recently has been with respect to the COVID-19 virus and the need to “flatten the curve” of infected individuals, so that the health care system is not overwhelmed. The solutions offered revolve around social distancing. This includes reduced air travel and fewer large gatherings.

The problem with these solutions is that they make the world’s problems related to slow economic growth and too much debt a great deal worse. Growing businesses are built on economies of scale. Social distancing requirements lead to less efficient use of buildings and furnishings. For example, if a restaurant can only serve 25% as many customers as previously, its overhead quickly becomes too high, relative to the customers it can serve. It needs to lay off workers. Laid off workers add to the problem of low demand for goods like new homes, vehicles and gasoline. Indirectly, they push commodity prices of all kinds down, including oil prices.

If this were a two-week temporary problem, the situation might be tolerable, but the virus causing COVID-19 is not easily subdued. Many cases of COVID-19 seem to be infectious during their latency period. They may also be infectious after the illness seems to be over. Without an absurd amount of testing (plus much more accurate testing than seems to be really available), it is impossible to know whether a particular airline pilot for a plane bringing cargo is infectious. No one can tell whether a factory worker going back to work is really infectious, either. Citizens don’t understand the futility of trying to contain the virus; they expect that an ever-large share of our limited resources will be spent on beating back the virus.

To make matters worse, from what we know today, a person cannot count on life-long immunity after having the disease. A person who seems to be immune today, may not be immune next week or next year. Putting a badge on a person, showing that that person seems to be immune today, doesn’t tell you much about whether that person will be immune next week or next year. With all of these issues, it is pretty much impossible to get rid of COVID-19. We will likely need to learn to live with it, coming back year after year, perhaps in mutated form.

Even if we could somehow work around COVID-19’s problems, we can still expect to have other pandemic problems. The problem with epidemics has existed as long as humans have inhabited the earth. Antibiotics and other products of the fossil fuel age have allowed a temporary reprieve from some types of epidemics, but the overall problem has not disappeared. Our attention is toward COVID-19, but there are many other kinds of plant and animal epidemics we are facing. For example:

Even if COVID-19 does not do significant harm to the world economy, with all of the resource limits and economic problems we are encountering, certainly some future worldwide pandemic will.

[5] Historically, the way the world economy has been organized is as a large number of almost separate economies, each acting like a separate economic pump. Such an arrangement is much more stable than a single tightly networked world economy.

If a world economy is organized as a group of individual economies, with loose links to other economies, there are several advantages:

(a) Epidemics become less of a problem.

(b) Each economy has more control over its own future. It can create its own financial system if it desires. It can decide who owns what. It can decree that wages will be very equal, or not so equal.

(c) If population rises relative to resources in one economy, or if weather/climate takes a turn for the worse, that particular economy can collapse without the rest of the world’s economy collapsing. After a rest period, forests can regrow and soil fertility can improve, allowing a new start later.

(d) The world economy is in a sense much more stable, because it is not dependent upon “everything going correctly, everywhere.”

[6] The COVID-19 actions taken to date, together with the poor condition the economy was in previously, lead me to believe that the world economy is headed for a major reset. 

Recently, we have experienced world leaders everywhere falling in line with the idea of shutting down major parts of their economies, to slow the spread of COVID-19. Citizens are worried about the illness and want to “do something.” In a way, however, the shutdowns make no sense at all:

(a) Potential for starvation. Any world leader should know that a large share of its population is living “on the edge.” People without savings cannot get along without income for for a long period, maybe not even a couple of weeks. Poor people are likely to be pushed toward starvation, unless somehow income to buy food is made available to these people. This is especially a problem for India and the poor countries of Africa. The loss of population in poor countries due to starvation is likely to be far higher than the 2% death rate expected from COVID-19.

(b) Potential for oil prices and other commodity prices to fall far too low for producers. With a large share of the world economy shut down, prices for many goods fall too low. As I am writing this, the WTI oil price is shown as $1.26 per barrel. Such a low price is simply absurd. It will cut off all production. If food cannot be sold in restaurants, its price may fall too low as well, causing producers to plow it under, rather than send it to market.

(c) Potential for huge debt defaults and huge loss of asset value. The financial system is built on promises. These promises can only be met if oil can continue to be pumped and goods made with fossil fuels can continue to be sold. Today’s economic system is threatening to fall apart. Even at this point in the epidemic, we are seeing a huge problem with oil prices. Other problems, such as problems with derivatives, are likely not far away.

The economy is a self-organizing system. If there really is the potential for some parts of the world economic system to be saved, while others are lost, I expect that the self-organizing nature of the system will work in this direction.

[7] A reset world economy will likely end up with “pieces” of today’s economy surviving, but within a very different framework.

There are clearly parts of the world economy that are not working:

  • The financial system is way too large. There is too much debt, and asset prices are inflated based on very low interest rates.
  • World population is way too high, relative to resources.
  • Wage and wealth disparity is too great.
  • Too much of income is going to the financial system, healthcare, education, entertainment, and travel.
  • All of the connectivity of today’s world is leading to epidemics of many kinds traveling around the world.

Even with these problems, there may still be some core parts of the world economy that perhaps can be made to work. Each would have a smaller population than today. They would function much more independently than today, like mostly separate economic pumps. The nature of these economies will be different in different parts of the world.

In a less connected world, what we think of today as assets will likely have much less value. High rise buildings will be worth next to nothing, for example, because of their ability to transfer pathogens around. Public transportation will lose value for the same reason. Manufacturing that depends upon supply lines around the world will no longer work either. This means that manufacturing of computers, phones and today’s cars will likely no longer be possible. Products built locally will need to depend almost exclusively on local resources.

Pretty much everything that is debt today can be expected to default. Shares of stock will have little value. To try to save parts of the system, governments will need to take over assets that seem to have value such as farm land, mines, oil and gas wells, and electricity transmission lines. They will also likely need to take over banks, insurance companies and pension plans.

If oil products are available, governments may also need to make certain that farms, trucking companies and other essential users are able to get the fuel they need so that people can be fed. Water and sanitation are other systems that may need assistance so that they can continue to operate.

I expect that eventually, each separate economy will have its own currency. In nearly all cases, the currency will not be the same as today’s currency. The currency will be paid only to current workers in the economy, and it will only be usable for purchasing a limited range of goods made by the local economy.

[8] These are a few of my ideas regarding what might be ahead:

(a) There will be a shake-out of governmental organizations and intergovernmental organizations. Most intergovernmental organizations, such as the United Nations and European Union, will disappear. Many governments of countries may disappear, as well. Some may be overthrown. Others may collapse, in a manner similar to the collapse of the central government of the Soviet Union in 1991. Governmental organizations take energy; if energy is scarce, they are dispensable.

(b) Some countries seem to have a sufficient range of resources that at least the core portion of them may be able to go forward, for a while, in a fairly modern state:

  • United States
  • Canada
  • Russia
  • China
  • Iran

Big cities will likely become problematic in each of these locations, and populations will fall. Alaska and other very cold places may not be able to continue as part of the core, either.

(c) Countries, or even smaller units, will want to continue to limit trade and travel to other areas, for fear of contracting illnesses.

(d) Europe, especially, looks ripe for a big step back. Its fossil fuel resources tend to be depleted. There may be parts that can continue with the use of animal labor, if such animal labor can be found. Big protests and failing debt are likely by this summer in some areas, including Italy.

(e) Governments of the Middle Eastern countries and of Venezuela cannot continue long with very low oil prices. These countries are likely to see their governments overthrown, with a concurrent reduction in exports. Population will also fall, perhaps to the level before oil exploration.

(f) The making of physical goods will experience a major setback, starting immediately. Many supply chains are already broken. Medicines made in India and China are likely to start disappearing. Automobile manufacturing will depend on individual countries setting up their own manufacturing supply chains if the making of automobiles is to continue.

(g) The medical system will suffer a major setback from COVID-19 because no one will want to come to see their regular physician anymore, for fear of catching the disease. Education will likely become primarily the responsibility of families, with television or the internet perhaps providing some support. Universities will wither away. Music may continue, but drama (on television or elsewhere) will tend to disappear. Restaurants will never regain their popularity.

(h) It is possible that Quantitative Easing by many countries can temporarily prop up the prices of shares of stock and homes for several months, but eventually physical shortages of many goods can be expected. Food in particular is likely to be in short supply by spring a year from now. India and Africa may start seeing starvation much sooner, perhaps within weeks.

(i) History shows that when energy resources are not growing rapidly (see discussion of Figure 3), there tend to be wars and other conflicts. We should not be surprised if this happens again.

Conclusion

We seem to be reaching the limit of making our current global economic system work any longer. The only hope of partial salvation would seem to be if core parts of the world economy can be made to work in a more separate fashion for at least a few more years. In fact, oil and other fossil fuel production may continue, but for each country’s own use, with very limited trade.

There are likely to be big differences among economies around the world. For example, hunter-gathering may work for a few people, with the right skills, in some parts of the world. At the same time, more modern economies may exist elsewhere.

The new economy will have far fewer people and far less complexity. Each country can be expected to have its own currency, but this currency will likely be used only on a limited range of locally produced goods. Speculation in asset prices will no longer be a source of wealth.

It will be a very different world!

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

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.

4,539 thoughts on “COVID-19 and oil at $1: Is there a way forward?

      • Thanks, Gail – that is worth pointing out. Global auto sales were down in 2019, too, of course.

        And oil was already in oversupply, too.

      • No surprise really as prices keep rising in some cases past $1500 for a top of the line iPhone or Samsung Galaxy which is causing the price of mid tier level phones to follow suit. While prices keep rising, innovation has dropped because there’s only SO much you can do to or put into a smartphone.

    • 15% drop in smartphone sales is still not a lot. I am expecting like 50%. I am not sure if this is just a wholesale channel number. From the inputs of people I know, no one is buying any smartphones unless it is broken.

      • I am thinking 50% sounds right…. given people are broke.

        And a lot of shops are closed

  1. “Is the UK on its way to its first ever debt default?

    “…if you want real confirmation that the world is now on a war footing look no further than the bond markets. Statistically, the level of borrowing now being incurred by western governments is comparable only to wartime financing regimes…

    “[But] time round, the borrowing is being incurred in the context of an enforced curtailment of production.”

    https://www.proactiveinvestors.co.uk/companies/news/918286/is-the-uk-on-its-way-to-its-first-ever-debt-default-coronavirus-bonds-could-be-storing-up-a-whole-heap-of-trouble-918286.html

    • “France’s economy is set to shrink by 8.6% this year in Bloomberg Economics’ central forecast…

      “The damage to the economy and public finances would then last much longer, with GDP plunging 14.4% in 2020 and debt shifting to an upward path above 120% of GDP from 2021 -– following Italy’s trajectory.”

      https://www.bloomberg.com/news/articles/2020-04-28/french-virus-debt-could-create-another-italy-in-europe-chart?utm_source=google&utm_medium=bd&cmpId=google

    • Harry, the Bank of England has committed to buying £200billion of treasury bonds on top of the £450billion it already owns. By this mechanism (money printing) the UK will not ever default on its debts.

      • But people might still be unable to buy a simple bag of flour.

        Which would fit a sensible definition of a failed state and economy.

        • you truly can not but a bag of flour? Here in my town the village store has bags of 10kg flour.

          • Very hard to find flour, of any kind: I am not exaggerating, and it’s been like that for over a month.

            Some bags of pasta and bread flour (no other types) have just reappeared on the online supermarket site I use, but there were none at all at the physical supermarket I went to yesterday.

            Most online suppliers/makers are out of flour, and many are refusing to accept new custpmer registrations.

            Suet also disappeared, and yeast. Frankly it’s more difficult than WW2 ever was: it’s not even rationed, just not there!

            • The problem is not shortage of flour but shortage of small quantity packaged products. 25% of all flour sales were to the UK wholesale market (cafes, pubs, bakeries etc.) which has disappeared. Its difficult for the supply chain to adapt to selling to the retail market.

            • Pasta is real hard to find in local US supermarkets. Pasta like white rice has an extremely long shelf life.

          • Same in our local supermarket – no flour, at least by the evening when I usually go in. I think it is re-stocked every morning but nothing like to full capacity. Home-baking has become very popular over the last few weeks (in the UK) I think is the main issue, and as John says, the supply chain cannot keep up.
            Usually no eggs either, by evening, maybe for same reason.

            • I am curious … if someone wanted to move cocaine around the world… how would they organize that during the lockdowns…

      • John, I agree that a UK default is unlikely. The £ was already behaving like an emerging market currency pre-coronavirus though, so a run on the £ could be a concern.

        Our current predicament is a collective one though with all nations borrowing like crazy, so at least the UK does not particularly stand out.

    • That you Harry McGibbs!

      I sort through the trash every day to find your posts. The trash is getting pretty thick, but when i find your stuff, it is still worth it

  2. According to the UK’s Office for National Statistics (ONS) today, deaths for the week ending 17th April was 213% above the 5 year average; 10500 additional deaths in England and Wales alone.

      • Yes, Fast Eddy, the Dow is up today 581 points…2.41% at 12:36 pm EST….GDP down 4.6%
        WSJ …U.S. Economy Shrank at 4.8% Pace in First Quarter
        Gross domestic product recorded steepest contraction since the last recession

        Yes, WAR IS PEACE

        • Eliminating dividends is good because it means companies are not paying shareholders a return therefore they retain earnings which increases the value of the company (which benefits the shareholders) except that the companies are running massive losses, and thus their share prices are rising.

          The beatings and lockdowns will continue until morale improves, or until the global economy collapses.

  3. There is pumped hydro, that got me thinking. 🤔
    So here is one outrageous idea for the US oil industry.

    Buy up all cheap oil and pump it back into the depleted and fracked wells. Dilute it first with the Cushing juice. Once the prices recover, pump it back up.

    Ka-Ching.

  4. Sadness and fury is what I feel when I see ridiculous images like this. A gigantic psy-op and an experiment in social engineering at the highest level is what we are seeing.
    Chinese workers should convert their junk factories into guillotine factories, and ship them out at cost price to the whole world.

    • It has happened to us all, just not so blatant. The factories, err, I mean the schools, must remain open for the good the workers, err, I mean children.

      • The schools are basically prisons now. I remember going to school without any video cameras and the doors were unlocked and nothing ever happened.

        Nowadays? Forget about it.

          • LOL I went to a rural school that was predominately white. So we didn’t have to deal with the vibrants and their issues. THANK GOD

    • So two pieces of plexiglass on each side of the desk and a face mask on the kids is outrageous? Really?

      It looks like a decent thing to do given the Taiwanese outstanding success with only 6 dead from the virus so far. They can maintain BAU ad infintum.

      West/Central Europe and America is the continents of pestilence in comparison with East Asia and Oceania.

      • The virus is harmless to children and to healthy people.
        Those kids should be hugging each other and playing and working together outside, learning skills that could be useful to them in a post-collapsing world, if there’s any, if they survive..
        And If we believe that even learning that skills is pointless now, then the children should be doing things pleasing to them, inside or outside. Nothing worse than spending the last weeks / months / years of this collapse process sitting in a “light and airy” classroom listening to people who don’t know anything valuable to you. After all, why study physics or geography, if your future, if you have any, will depend on knowing how to grow and store potatoes, and then defending your granary?
        Get real.

        • Clarification perhaps worth doing. The photo above is from a school in Chongqing, in the Totalitarian Republic of China.

        • I might wonder about the long term effects on children from this ‘nightmare’….. but they’ll soon be dead so I actually don’t wonder.

      • Fear Fear Fear!!!
        Fear

        Fear FEAR!!!

        Apparently this is supposed to look like an ambulance siren — to ‘honour first responders’ – of course the real reason is to remind people to be Fearful….

        Being a PR hack must be the absolute worst job in the world — you spend your entire die thinking up lies — and they don’t even have to be particularly clever lies — because your audience is normies and normies believe anything.

        Right normies? Heeee HAAAWWWW!!!

      • The gross abnormality of that school (prison?) environment, by any standard, is what is wrong!

        Of course, people can be conditioned to accept anything if it is ‘for their own good’. But this isn’t for their own good, as children are not really at any significant risk.

        Horrifying! A long way from when we could lounge about the school playing fields, sit under the shade of old trees, or study at a window of the library while the smell of newly-cut grass drifted in through an open (shocking!) window…..

        Those children will be seriously screwed up, but one supposes they are used to life in small apartments anyway.

  5. Don’t look now, but the stock market in the US is up, buy the dips – you heard it here, I did suggest it a couple of times when everyone thought the world was going to end. Not this time, not yet.

    There is above a photo of students in class with a note, “sadness and fury.” The students are dressed neatly, the classroom is light and airy, the students are protected and for want of a better word attentive.

    We have common core, test scores are down, down, down. Students are indentured, room and board was cancelled but bills for same were not cancelled at colleges across the country, elite schools applied for loans from the Treasury when they had $40B in the bank. That is the sadness and total disregard for our young people in the US.

    Make a bet and a good guess that taking a random sample of students in the US these young people will outscore them, true sadness, true gloom and doom. It is not stuff, its our people, it is caring for young people, a good guess is these students will not have a transgender drag queen reading them fairy tales or whatever passes for diversity training in the US. That is social engineering at the highest level.

    Dennis L.

    • Boeing was having a great day – up 8% when I last checked – on the announcement that it is cutting 10% of its workforce.

      The divergence between the stock markets and the “real” economy now is enough to turn one socialist.

    • I am sure they are being very well trained to parrot the official knowledge and wisdom, and to never question the Party’s authority, and to assume someday their roles as cogs in the machine for turning resources into waste. As they must. Some of them could even reach senior positions in the Ministry of Peace, if any possibility of future for them had not been sabotaged on by their governmental protectors.
      But the risk of facing drag-queens, that risk they don’t have, which is awesome, since they could be traumatized for life, and there’s nothing more sad than a traumatized robot.

      • I’m on record as suggesting the markets will be roaring when the supermarket are looted and permanently empty…

        That’s about the only time the fkkktards who are rejoicing over their market wins will actually get it.

  6. Gail I know you have said that some areas might fare better than others but I have a hard time seeing that. Yes I would love to think like Dennis L. that everything is fixed and buy into the stock market but I have been using this rise to get out of the stock market! The world just seems too interconnected but I look back at WW1 and WW 2 and can’t understand how things did not collapse after those two wars. Can the FED and central banks just make everything disappear? Why have I been working so hard?! Can’t they just give me Money!! Free everything !!! I bought the most fuel efficient car and stayed out of debt and saved a lot of Cash based on the advice here but now I feel like I maybe all for not…

    • Dan,
      A number of years ago Buffet recommended a book, “The Death of Money.” Perhaps the market is not going up, the dollar/whatever is going down. A good company is a group, a group can do better than an individual, the problem is every day that group is valued differently at the margin, it is not easy to tolerate those dips, we fear losing more than winning.

      Some are pessimistic about everything, it seems to me to be as bad as thinking everything will be fine no matter what. Were one a Jew in Germany in 1939 leaving a billion dollars behind and moving out of Europe would not have been a bad idea. Living to fight another day, returning to Germany and claiming maybe half that money would only mean losing less, but not everything.

      There is a crowd that thinks everything is bad, some think all teachers are bad, another that all cops are bad, all politicians are bad, etc. We all do our best with the cards we are dealt, there will always be people smarter than we are, there will be people not as smart, we do our best, we keep some hope and try and see the best in everyone.

      Dan, you did what is right for you, debt has made a mess out of many people, liquidity is never bad, there will always be people who do better, today is what we have, it is a wonderful world.

      Dennis L.

      • “The Death of Money”

        Terrible, terrible book. I make it a point to avoid anything affiliated with Rickards now…

        I don’t care much for Buffet either, so I guess I’m not surprised he recommended it.

        -GBV

    • None of us know for certain what will happen. But it does seem like some people, somewhere, will be able to carry on, in one way or another. The successful people might now be hunter gatherers. Or, they might be farmers who have very simple farms, and live primarily on a few crops grown locally. Or they might be part of a bigger economy, that is able to somewhat hang on to what they had before.

      So things might happen along these lines. We just don’t know.

      • ‘Or, they might be farmers who have very simple farms, and live primarily on a few crops grown locally’

        Or, they might be farmers who have very simple farms, and live primarily on a few crops grown locally and who have been enslaved by armed gangs of extremely violent individuals.

        At least that’s what’s happened throughout history….. but of course history might not repeat … humans might decide enough of this violence and switch to Koombaya/Snowflake mode….

    • Dan – I have maintained a mortgage on one property interest only because of the low rates and there is no point paying it down or off….

      The bank called me and said hey mate what’s the plan going forward – we need to get our money back at some point not just the interest.

      I said you’ll need to continue or I will shift to another bank that will allow interest only.

      He understood but asked why I am insisting on this as I am not in any sort of financial distress…

      So I told him well … it’s like this … take a look around you at what’s happening — we are headed for a mega collapse — and when that happens the property market will implode — so I’m not keen on paying down something that is going to zero at least to a spot where I am in deep negative equity…

      That would be wasting money wouldn’t it. And I’ll leave the key in the door… (seek legal advice before doing something like this as they may be able to seize your assets and bankrupt you)…

      Another fun game to deny Shylock his pound of flesh – which I won’t try (because I don’t need the grief) – would be to just stop making payments altogether — the courts are frozen so not much would happen — and I am thinking that they won’t be keen to repossess the property market is not exactly ‘buoyant’ at the moment — and a forced sale would be painful for the banks….

      If you are certain this is the End Game — then we’ll be long gone before the banks get around to doing much more than sending soothing letters asking you to pay as much as you can….

    • Sometimes however smart the move it just comes to nothing: I’ve spent the last 5 yrs working on something that was just about to take off and has been torpedoed – I suspect permanently, but we will see – by this crisis.

      The financial loss is not that great, but the loss of time and sheer labour would be enormous if I hadn’t actually enjoyed myself a lot along the way. The best rule is no regrets and press onwards!

  7. Many people today face the the requirement of their employers to lower their wages.

    It may be ok when they ask you to lower your wages because you work less, but it is a complete misunderstanding of the situation when they ask you to work for less. Because it is your low purchasing power that makes the economy to decline.

    You can nieither save the economy, nor yourself when you work for less. The problem is that the too low wages force you to you to do the things yourself instead of buying them or to completely give up buying them.

    This so called coronavirus crisis makes many managers to adopt wrong measures, as it was the imminent recession due to the debt limits which is responsible for the economy decline.

    Lowering your wages harms the economy dependent on the increasing debt, that compensates for the low wages, even more.

      • I would say that the task of the companies now is to reduce the complexity of the products. E. g. with creating modules from too complex products so that rapair and maintenance costs can be lowered.

    • From the pages of Variety (April 13, 2020):

      Media and publishing company Condé Nast, citing the economic impact of the COVID-19 crisis, is making a series of cutbacks including layoffs and reducing pay for high-salary employees.

      The series of cost-cutting measures includes some amount of layoffs; pay cuts of 10%-20% for those making $100,000 or more annually — while CEO Roger Lynch and outside board members will take a 50% pay cut; reduced schedules for some staffers; and the postponement of several big strategic initiatives.

      Lynch, who joined the company about a year ago after heading up Pandora and Sling TV, outlined the steps the company is taking in an internal memo Monday. (Read the full memo below.)

      “We aren’t alone in needing to take actions like this,” Lynch wrote in the memo. “Companies around the world are all facing similar challenges and responding accordingly. But that doesn’t make this process any easier.”

      The New York-based company, whose titles include the New Yorker, Wired, Vogue, Vanity Fair and GQ, has about 6,000 employees worldwide.

    • Cut wages and reduce customer spending thereby helping to deepen the crash.

      Lock consumers in their homes for months to ‘save the hospitals’ – crash the economy so that hospitals cannot be funded and more people die or live crippled.

      Sheer brilliance!

      What’s the key here? Lack of comprehension of a complex networked system.

      • The other brilliant move, which all govts. now seem keen on. is imposing ‘safety distancing’ etc, on firms, so that they cannot possibly function efficiently and profitably, fulfill orders in a timely fashion, leading to closure and the loss of all those jobs.

        Allowing a re-opening’ that leaves firms hobbled is beyond stupid.

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