Reaching the End of Early Stimulus – What’s Ahead?

Many people thought that COVID-19 would be gone with a short shutdown. They also thought that the world’s economic problems could be cured with a six month “dose” of stimulus.

It is increasingly clear that neither of these assumptions is correct. Despite the claims of epidemiologists, our best efforts have never been able to reduce the number of newly reported COVID-19 cases for the world as a whole for any significant period of time. In fact, the latest week seems to be the highest week so far.

Figure 1. Chart of worldwide COVID-19 new cases, in chart prepared by Worldometer with data through September 20, 2020.

At the same time, the economy, despite all of the stimulus, is not doing very well. Airlines are doing very poorly. The parts of the economy that are dependent upon tourism are having huge problems. This reduces the “upside” of economic recovery, pretty much everywhere, until it can be corrected.

Another part of the world economy doing poorly is clothing sales. For example, many fewer people are attending concerts, weddings, funerals, out-of-town business meetings and conventions, leading to a need for fewer “dressy” clothes. Also, with air travel greatly reduced, people don’t need new clothing for visiting places with different climates, either. Most clothing is bought by people from rich countries but made by people in poor countries. This cutback in clothing purchases disproportionately affects people who are already very poor. The loss of jobs in these countries may lead to an inability to afford food, for those who are laid off.

Besides these difficult to solve problems, initial programs set up to help mitigate job losses are running out. What kinds of things might governments do, if they are running short of borrowing capacity, and medical solutions still seem to be far away?

In Section A of this post, I outline what I see as some approaches that governments might take to try to “kick the can down the road” a while longer, as well as some general trends regarding near term outcomes.

In Section B, I explain how our current problems seem to be related to the more general “overshoot and collapse” problems of many prior economies. I show that historically, these overshoot and collapse situations seem to have played out over a number of years. In many ways, the outcome might look more like “overshoot and decline” than “overshoot and collapse” from the point of view of an observer at the time.

In Section C, I explain two different types of “breakage” we can expect going forward, if we are really dealing with an overshoot and collapse situation. In the first, oil production is likely to fall because of the collapse of some of the governments of oil exporters. In the second, the international trade system breaks down because of problems with the financial system and countries no longer trusting each other’s currencies.

[A] Ideas for “Sort of” Addressing the Economic Problems at Hand 

The following are a few ideas regarding possible mitigation approaches, and the expected results of these attempted solutions:

[1] Programs to keep citizens in their homes will likely be extended. Mortgage repayment programs will be extended. Renters will be allowed to stay where they are, even if they cannot afford the rent.

[2] New programs may be added, allowing those without adequate income to pay for electricity, heat, water and sewer connections. These programs may be debt-based. For example, homeowners and renters may be given loans to pay for these programs, with the hope that eventually the economy will bounce back, and the loans can be repaid.

[3] More food bank programs will be added, with governments buying food from farmers and donating it to food banks. There is even an outside chance that people will be given loans so that they can “buy” food from the food bank, with the hope that they can someday repay the loans. All of these loan-based programs will appear to be “cost free” to the government, since “certainly” the crisis will go away, and borrowers will be able to repay the loans.

[4] Loans to students will increasingly be put in forbearance, to be repaid when the crisis is over. Auto loans and credit card debt may be also be put into forbearance, if the person with the debt has inadequate income.

[5] Even with all of these actions, families will tend to move back together into a smaller total number of residences. This will happen partly because citizens won’t want to be burdened with even more debt, if they can avoid it. Also, older citizens won’t want to move into facilities offering care for the elderly because they know that COVID restrictions may limit with whom they can have contact. They will much prefer moving in with a relative, if anyone will take them in return for a suitable monthly payment.

[6] As extended families move in together, the total number of housing units required will tend to fall. Prices of homes will tend to fall, especially in areas where citizens no longer want to live. Governments will encourage banks and other mortgage holders to look the other way as prices fall, but as homes are sold, this will be increasingly difficult to do. In many cases, when homes are sold, the selling prices will fall below the balance of the debt outstanding. Governments will pass laws not allowing financial institutions to try to obtain the shortfall from citizens, at least until the crisis is over.

[7] Some businesses, such as restaurants without enough patrons and colleges without enough students, will need to close. Clothing stores without enough sales will also need to close, as will retirement homes without enough residents. All of these closures will lead to a huge amount of excess commercial space. It will also lead to the loss of more jobs, raising the number of unemployed people.

With these closed businesses, the price of commercial real estate will tend to fall. Lenders will be encouraged to “extend the loans” and “pretend that asset prices will soon recover,” when renewing loans. Even this approach won’t be enough in many cases, as businesses file for bankruptcy.

[8] With fewer residences and business properties occupied, the amount of electricity required will fall. Wholesale prices for electricity will tend to fall, pushing ever more fossil fuel and nuclear electricity providers out of business. Electricity outages will become an increasing problem, as renewables become a larger share of the electricity mix and are unable to increase supply when needed. Rolling outages will become more common.

[9] Pensions of all kinds will become more difficult to pay. Government programs, such as Social Security in the US, will have less revenue to pay pensions. There are funds set aside in the Social Security Trust Fund to cover a shortfall in funding, but these funds are simply non-marketable US government debt. In theory, the US government could add more debt to the Trust Fund and make payments on the basis of this added debt. Otherwise, the US will likely need to either raise taxes or increase the “regular” government debt level, in order to continue to pay Social Security pensions as planned.

Private pensions, backed by bonds and shares of stock (and perhaps other assets), will find the values of their available assets are falling. Governments, if they are able to, will try to hide this problem. For example, regulators may develop a new way to value assets, so as to make pension funding shortfalls mostly disappear.

In the case of pension bankruptcy, government insurance is often theoretically available. In the US, Pension Benefit Guaranty Corporation provides coverage; other countries may have similar programs. Unfortunately, this program is not set up to handle a large influx of new bankrupt plans, without raising taxes. The problem then will be raising taxes enough so that one year’s pension benefits can be paid, pushing the problem down the road a bit longer.

Bank accounts have similar guarantees, with similar funding problems. The guarantee organization has very little funds available, without raising taxes or somehow increasing debt.

[10] Stock market prices will tend to fall, leading those who have purchased shares using debt to want to sell quickly, pushing the stock market down further. Currency relativities will fluctuate wildly. Derivatives of many kinds will encounter payment problems. Many ETFs likely won’t work as planned. Governments will try to figure out ways to somehow mitigate these problems to the extent possible. For example, stock markets may be closed for a time to hide the problems. Or, additional time may be given to settle purchases, so that perhaps the deficiencies can be corrected. Eventually, some banks may be taken over by governments, to assure the operation of the parts deemed essential.

[11] Eventually, governments may find it necessary to nationalize a wide range of essential businesses. These could range from trucking companies to banks to oil companies to electricity transmission repair companies. If the balance sheets of these companies are too bad, governments may simply stop publishing them.

[12] These types of actions will mostly be available to “rich” countries. Poor countries can tap their “rainy day” funds, but these will soon be exhausted. In this case, poor countries will find that there is little they can do unless international organizations bail them out. Because of cutbacks in tourism and in orders of finished goods, such as clothing, these countries are likely to encounter high levels of unemployment. Without aid, the poorer citizens of these countries will find it impossible to afford an adequate diet. With inadequate nutrition, the health of low income citizens will decline, and they will easily succumb to communicable diseases, such as tuberculosis and malaria. Death rates are likely to skyrocket.

[B] What Happens When an Economy Outgrows Its Resources? 

Most people think that the issue we are dealing with is a temporary problem associated with a new coronavirus. I think that we are dealing with a much worse problem: The world’s population has outgrown the world’s resource limits. This is why our current problems look so difficult to solve from a financial point of view. This is part of the reason many people feel that shutting down the economy for COVID-19 is a good choice. There are really many reasons for the shutdowns, besides preventing the spread of COVID-19: Keeping people inside stops the many protests related to low wages. The shutdowns appear to restore order to a troubled system. Broken supply lines from shutdowns elsewhere reduce raw materials availability, making it more difficult to keep production in one part of the world operating, when others are closed.

Overshoot and collapse is a problem that many smaller economies have encountered over the years. If I am right that we are now encountering a similar situation, there is a big change ahead. The change will not be instantaneous, however. The big question that arises is, “Over what time scale does such a collapse take place?” If it takes place over a number of years, it may look more like “overshoot and decline” than “overshoot and collapse” to those who are living through the era.

A recent partial collapse was that of the Soviet Union in 1991. The Soviet Union was an oil exporter. Oil prices had hit a high in 1981 and had been declining for 10 years when the Soviet Union collapsed. With low oil prices, it had been difficult to earn enough revenue to reinvest in new oil fields to replace the production that naturally declines as oil is extracted. Oil, directly and indirectly, had provided many jobs for the Soviet Union. After ten years of stress, the central government of the Soviet Union collapsed in 1991.

Low oil prices first slowed production growth between 1982 and 1987 (Figure 2). Oil production began to decline in 1988, three years before the government collapsed. Production gradually rose again in the early 2000s, as oil prices rose again.

Figure 2. Oil production and price of the former Soviet Union (FSU), based on BP’s Statistical Review of World Energy 2015.

What was surprising to me was the fact that consumption of all types of energy by the Soviet Union fell at the time of the central government collapse in 1991, even hydroelectric. The overall level of energy consumption never bounced back to its previous level.

Figure 3. Former Soviet Union energy consumption by fuel, based on data of BP’s Statistical Review of World Energy 2018.

What happened was that many inefficient industries were forced to close. Some of these industries were in the Ukraine; others were in Russia and elsewhere. As they closed, less electricity and less oil and gas were used.

The loss in energy consumption was pretty much permanent. The manufacturing that left the Soviet Union was replaced by other, more efficient, manufacturing elsewhere. Also, without their previous manufacturing jobs, the people of the former Soviet Union were poorer. They could not afford to buy cars and homes, keeping fuel consumption lower.

Another indicator regarding the speed of collapses is the analysis done by researchers Peter Turchin and Sergey Nefedov, regarding collapses of eight agricultural economies from earlier periods. I compiled the information they provided in the book Secular Cycles in the chart shown in Figure 4. In the cycles they analyzed, the “crisis period” seemed to last 20 to 50 years. One thing that is striking in their analysis is that epidemics often played a major role in the declines. As wage disparity grew, poorer workers ate less well. They became more vulnerable to epidemics and often died.

Figure 4. Chart by author based on information provided in Turchin and Nefedov’s book, Secular Cycles.

In these early cycles, the major industry was farming. These collapses were in the days before electricity use. In these situations, collapses tended to play out over 20 to 50 years. Our more modern economy, with its just-in-time supply lines, would seem likely to collapse more quickly, but we can’t know for certain. This analysis is thus another data point that suggests that what may be ahead could be closer to “overshoot and decline” than “overshoot and collapse.”

[C] What May Be Ahead

[1] We are likely to experience the collapse of central governments of several of the oil exporting nations, in a manner not entirely different from the collapse of the Soviet Union in 1991.

Oil prices have been low for a very long time, since 2008, or at least since 2014.

Figure 5. Weekly average spot oil prices for Brent, based on data of the US Energy Information Administration.

Most OPEC oil producers seem to require prices in the $100+ per barrel range in order to be able to fund the programs their people expect (Figure 6). One important program provides subsidies for imported food; other programs provide jobs. Without these programs, revolutions to overthrow the current leaders seem much more likely.

Figure 6. Estimate of OPEC break-even oil prices, including tax requirements by parent countries, from APICORP. Figure is from 2014.

At this point, oil prices have been below $100 per barrel since 2014, a period of 6 years (Figure 5). Stress is increasing; OPEC producers have cut production in an attempt to try to get prices up. Prices are now in the low $40s.

We should not be surprised if, over the next few years, oil production starts to fall in several areas around the world because of internal problems. Another possible impetus for the drop in production may be wars with other nations. Some such wars might be started simply to try to get the price of oil up to a more acceptable level.

We have been falsely led to believe that oil is not important; renewables can handle our needs in the future. In fact, oil is essential for today’s farming. It is essential for transportation of goods and services of all kinds. It is essential for the construction industry and for mining. Researchers in academic institutions have received grants, encouraging them to put together models regarding what could be ahead. These models tend to be extremely unrealistic.

One of the most absurd models is by Mark Jacobson. He claims that by 2050, the world economy can operate almost entirely using wind, solar, and hydroelectric. Unfortunately, we don’t have until 2050; world oil, coal, and natural gas supplies look likely to decline in the 2020 to 2025 timeframe because of low prices. Another problem with this approach is that there is not very much fossil fuel to extract, because most of what appears to be available from resource studies cannot really be extracted at the low prices set by physics. 

The underlying problem is confusion about which direction prices go, as an economy reaches limits. Economists assume that scarcity will cause prices to rise; the real story is that fossil fuel prices are set by the laws for physics because the economy is a dissipative structure. As the economy approaches limits, prices tend to fall too low for producers, rather than rise too high for consumers.The sad truth is that we can’t even count on the continued extraction of the small amount of fossil fuels that Jacobson assumes will exist after 2050.

[2] We are likely to see a huge change in the international financial system and in the international trade system in the next few years. 

As long as there were plenty of resources, relative to the world population, the optimal approach was to do as much international trade as possible. This approach would maximize world GDP. It would also add jobs in developing areas of the world without too huge an impact on job availability in the countries moving their manufacturing to lower-cost areas.

In the last few years, it has become increasingly evident that there aren’t enough jobs that pay well to go around. This is really the underlying problem with respect to the increased hostility among nations, such as between the US and China. Tariffs are being used to try to bring jobs that pay well back to those who need them. Strange as it may seem, it takes fossil fuels to create jobs that pay well.

Figure 7. World Trade as a percentage of GDP, based on data of the World Bank.

Figure 7 shows that international trade was rising as a percentage of GDP for many years, and it hit a high point in 2008. Since then it has bounced around a little below that high point. In 2020, it will clearly take a big step down because of all of the cancellation of trade related to COVID-19 restrictions.

We saw earlier that commodity prices tend to fall too low for producers. Indirectly, this means that profits tend to fall too low. Interest rates tend to follow these low profits down, since businesses cannot afford to pay high interest rates.

With these low profits and low wages, the financial system gets strained. “Debt and more debt” seems to be the way to fix the system. Growing debt at ever-lower interest rates is encouraged. These low interest rates tend to raise asset prices because monthly payments to buy these assets fall with the falling interest rates. Stock markets tend to rise, even when the economy is doing poorly.

If the many strange approaches I outlined in Section A are used to add even more debt to keep the system afloat, eventually some part of the system is going to “break.” For example, banks will stop issuing letters of credit with respect to purchases made by buyers that don’t seem sufficiently creditworthy. Banks may stop trusting other banks, especially if the banks do not really seem to be solvent. At some point, the international financial system seems likely to start “coming apart.” Eventually, the US dollar will stop being the world’s reserve currency.

My guess is that a new two currency system will develop. Governments will issue a lot of currency for local use. It will not be useful for buying goods from other countries. Much of it will be used for buying locally produced food and other locally produced goods.

Very little international trade will be done. Any international trade that will be done will occur between trusted partners, at agreed upon exchange rates. Perhaps a special currency will be used for this purpose.

In this new world, individual countries will be very much on their own. With very little fossil fuel, countries will tend to lose electricity availability very quickly. Transmission lines will go unrepaired. It will become impossible to fix existing wind turbines. Road repair will become impossible. Electric cars will likely be as unusable as gasoline powered ones.

There will likely be fighting about resources that are available, leading to countries subdividing into smaller and smaller units, hoarding what little resources they have available.


1Energy prices tend to fall too low because, as the economy gets more complex, wage and wealth disparity tend to grow, reflecting differences in training and responsibility. The problem occurs because low-paid workers cannot afford to buy very large quantities of goods and services produced by the economy. For example, many cannot afford a car or a home of their own. The spending of high-paid workers does not offset the loss of demand by low-paid workers because high-paid workers tend to spend their wages more on services, such as advanced education, which require proportionately less energy consumption. Ultimately, the lack of demand by low-paid workers tends to pull down the prices of oil and other commodities below the level required by producers.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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2,450 Responses to Reaching the End of Early Stimulus – What’s Ahead?

  1. Fred Koenig says:

    I’ve been a long time reader of Gail’s writing, going back to the Oil Drum. She cleverly saw the flaw in what was conventional peak oil groupthink, that oil could become very highly-priced, and remain highly-priced for prolonged periods of time. On the other hand, many of her articles since the Oil Drum days have lacked any coherent conclusions. Her articles have essentially been just a string of introductory paragraphs, leaving the reader with more questions than answers. This article is finally one that does have coherence. There will certainly be seismic changes in American society. Areas of interest include: what are some tipping points for economic well-being, (in lieu of the Dow being buttressed by aspiration more than reality)? How can a nation with a ruling political party that is so thoroughly Machiavellian respond to such an enormous crisis? When firearms outnumber people, how can order prevail when law enforcement won’t be so pervasive? What are some potential timelines for such upheavals?

    • I am afraid I don’t really know the answer to all of these questions.

      We are dealing with systems that have lots of things that could go wrong. Trump could die of COVID. Biden could die from COVID. Those involved with international trade might suddenly find themselves unable to get credit insurance regarding international transactions. This could happen because the business desiring credit is not very creditworthy. It could also happen when the country where the business is located has a currency that is deemed to be not very secure. It might fall very suddenly, very far. Or, some major banks may need suddenly need bailing out and not being able to get adequate assistance. Or governments could be overthrown, especially governments of oil exporting countries suffering (for years) with low oil prices.

      The direction I see things happening is in the direction of international organizations “coming apart” and countries made up of smaller units (such as states or provinces) coming apart into smaller units. Parts of a country my come under the leadership of one leader, and other parts under the leadership of another leader. International trading will go downhill, partly because there will be many new currencies representing the new smaller countries..

      It would seem like some of these changes could start taking place in the next few months. At the same time, some business may go on as usual, even with these changes, at least for a while.

      With such a changing, different types of leaders will be needed. Some of them may appear to be “thoroughly Machiavellian.” To change the system, we really need leaders who are willing to push for major changes. They cannot be the statesmen of days past.

      The thing that limits the use of firearms is the amount of ammunition for these firearms. Also, transportation of this ammunition limits the usefulness of the firearms. If ammunition is not being made locally, these firearms may not be useful for very long

      I would never have thought of the idea of a shutdown going on at least partially for months, would be eing possible. A self-organizing system can “come up with” solutions to “not enough” that none of us individually would overthink of as being possible..

      We may have to just wait and see what happens. Maybe, timelines will become more clear as we go along.

  2. davidinamonthorayearoradecade says:

    Tim Morgan:

    “The real economy, and the people who comprise it, can tolerate stagnation, or a modest decline in output – but the financial economy relies absolutely on continuity and growth.”

    “For the financial system to survive at all, the real economy must carry on growing, and the absolute, irreducible minimum is that it must not contract, other than by a very small extent, and for a very limited period.”

    “… even something well short of de-growth – for instance, a severe and prolonged recession, well short of what was experienced in the 1930s – would bring down the financial system.”


    so he supports the idea that “the financial system will collapse” after a “severe and prolonged recession”.

    that idea will be tested by 2021 or 2022.

    • Dennis L. says:

      This SEEDs seems worth some study, it seems to be a more detailed explanation of what Gail and others on this site are seeing and experiencing.

      “Measured on the basis of C-GDP, economic output per tonne of oil equivalent (toe) of energy consumed has declined steadily, from $7,400 in 1999 to $6,730 last year, reflecting the observation that C-GDP has increased by only 40% over a period in which primary energy consumption expanded by 54%.

      This deterioration in conversion efficiency may seem counter-intuitive, but has several important inferences, in addition to the obvious statement that we are using energy less, rather than more, effectively over time.

      Specifically, changes in the ‘mix’ of the energy slate seem to be trending towards lesser conversion efficiency, whilst technology has concentrated much more on finding additional applications for energy than on the more efficient use of energy itself.”

      Personally, I am experiencing inflation, grapefruit are up 50% today, investing going forward is a real issue. Buying farmland seems like a good bet until up and personal one sees the few people who are farming, their close proximity and the chance they will become ill. A crop not harvested returns nutrients to the soil, but no cash with which to pay taxes. Should the “peasants” die, it is a generation to train the next – this is real in my case, the next generation is seven year old.

      The above referenced link seems to be an excellent summary, it will take me a few reads to digest even basically, then what does one do? Maybe, another glass of wine to digest the ideas.

      Dennis L.

      • I would agree that many of Tim Morgan’s posts are well worth reading, including his most recent one, The Castaway’s Dilemma, Part 2: WE CAN’T RESCUE FINANCE UNLESS WE RESCUE THE ECONOMY.

        I would be more enthusiastic about SEEDs, if I it weren’t a black box that he has put together. I expect he would get a similar result if he simply looked at the amount of primary energy consumed.

        • Dennis L. says:

          .Yes, I too have looked for the box, can’t find it, would be nice to see the insides of it.

          Dennis L.

        • Robert Firth says:

          Thank you for the reference. I enjoyed the paper, but I would have enjoyed it rather more if the author had given just one convincing reason *why* we should rescue finance. Why should we “rescue the economy” merely in order to siphon off more hard earned wealth into the pockets of liars, rogues, and thieves? They made their bed; why should they not lie in it?

        • Nehemiah says:

          “rescue the economy” always means “make the economy grow,” so the current financial system apparently depends on ETERNAL GROWTH, and since growth requires energy, an eternal increase in energy consumption.

    • Dr. Tim leans more on earlier spectrum of crash ~2020-22-25, he is worried about few $T printed y/y, which supposedly is going to spook the markets.
      I’m not sure of that at all, in the great scheme of things we probably have to go first through period (perhaps brief) of more naked printing on way higher level, e.g. say US/FED printing ~$20T and key RoW providing another $20-30$ for aggregate of ~$50T globally each year..

  3. Azure Kingfisher says:

    Kunstler recently summed things up nicely:

    “Of all the things that have made Americans anxious and hysterical this year, this horror of middle-class financial ruin has not quite expressed itself overtly in the public arena — at least, not in the streets. For sure, the Antifas and BLM mobs have been active looting, burning, and smashing things up, but many of these are unemployables, and the ones burdened with college debt may be counting on Democratic Party promises of a jubilee on that.

    The foundering middle-class may be people most sympathetic to Trump and Trumpism. You can’t sell them on the identity politics nonsense that has become the Dems’ stock-in-trade. Laid-off airline pilots, hair stylists, and insurance adjusters are probably not interested in critical race theory, gender dysphoria, re-imagining law enforcement, able-ism, and the travails of the ‘neuro-diverse’ (the latest term-of-art for the mentally ill). They may also catch a whiff of yet deeper economic calamity in the Democrats’ relish for more lockdowns, and even in the promised ‘universal basic income’ schemes that would pay the able-bodied to not work. The question for this large group is how many will swap their liberty for the very sketchy and conditional security of a Woke nanny state that requires strict obedience to whatever crazy crusade it thinks up next?

    There’s your true friction point in the current disposition of things. People used to being busy, productive, and independent may feel a mighty resentment about becoming that kind of society, and they may fight over it. At least they’ll turn out to vote on it. Maybe they’ll do both.”

    • I think he is right. It is the many people in the middle who are really having difficulty. The people at the bottom have been having difficulty for a long time. With the whole system having difficulty, it is even more difficult than before to help the people at the bottom, much less the people in the middle as well.

      • Dennis L. says:

        Maybe not,

        “Nationwide, our study found that the wage‐​equivalent value of benefits for a mother and two children ranged from a high of $60,590 in Hawaii to a low of $11,150 in Idaho. In 33 states and the District of Columbia, welfare pays more than an $8‐​an‐​hour job. In 12 states and DC, the welfare package is more generous than a $15‐​an‐​hour job.

        Of course, not everyone on welfare gets all seven of the benefits in our study. But, for many recipients — particularly the “long‐​term” dependents — welfare clearly pays substantially more than an entry‐​level job.

        To be clear: There is no evidence that people on welfare are lazy. Indeed, surveys of them consistently show their desire for a job. But they’re also not stupid. If you pay them more not to work than they can earn by working, many will choose not to work.”–77VkFcGUZSXRvnAaAq4GEALw_wcB

        This if from 2013, I am taking less time to scan articles these days, I recall seeing that the total benefits were more like $60K a few years ago. Given one does not have to work one’s time is their own, this is basically retirement.

        There are other real issues, those have been alluded to on this site, they are real.

        Rich is an interesting term, if you are rich and have $10m, that is about $100-200K annual income.

        Medicare is not means tested on the lower end, so that is easily worth $10k/ year for the elderly in avoid insurance/copayments compared to under 65.

        Dennis L.

        • The Kaiser Medicare Advantage Plan in Georgia costs exactly $0, except for deductibles on individual services, including drugs. These tend not to be terribly high either. It would be at the extreme end of the cost savings, I would think.

  4. Harry McGibbs says:

    “The eurozone is sliding further into a debt-deflation trap, risking a protracted economic depression in the southern countries and a slow-motion insolvency crisis…

    ““The European Central Bank has completely lost control of the inflation process. It is very serious,” said Professor Ashoka Mody, the International Monetary Fund’s former deputy director in Europe…

    “The downward lurch comes as a second wave of Covid-19 threatens to truncate the fragile recovery before it has reached “escape velocity”. Madrid is back in quarantine. Paris is on “maximum alert” after the ratio of coronavirus patients in intensive care reached the danger threshold of 30pc.”

    • Harry McGibbs says:

      “The European Central Bank has identified several scenarios that would require it to launch a digital euro and said it was confident of overcoming any challenges as it started a public consultation on the idea…

      ““A digital euro would preserve the public good that the euro provides to citizens: free access to a simple, universally accepted, risk-free and trusted means of payment,” the ECB said.”

      • A new second form of currency?

      • Hm, so they are signaling both the crypto USD and EUR are already prepared for the occasion, not mentioning the Asians, who got there first. So, another huge step up in the dystopian existence is on order for the near-mid term..

        Therefore in not so distant future it’s going to be interesting to watch the [disorderly?] sloshing of various asset classes across various made up barriers likely put between them by CBs/GOVs at that time: stock market, real estate, cash equivalents in banks, cash, food and energy (per capita expiry date ration), royalties/revenue stream from IP, ..

      • Robert Firth says:

        “A digital euro would preserve the public good that the euro provides to citizens: …”

        Here we go again. “When a man talks about the good of humanity, he is getting ready to commit a crime.”

      • Michael Murphy says:

        National crypto will be non-debt currency issued directly by national treasuries to counteract the deflationary aspect of the banks going under as businesses and individuals deleverage.

        • Non debt? Worthless? Not accounted for?

        • all currency represents the exchange of one form of energy for another

          If there is no energy, or too little energy, available in any commercial system, then currency can have no value.

          Creating ‘crypto’ currency cannot increase the amount of energy available to the people ‘using’ that currency. So the ‘value’ of the currency itself depends exclusively on what the users ‘think’ it is.

          Which happens to be the definition of a ponzi scheme

          a ponzi scheme has no material value, and is supported only by the influx of actual cash to support the ‘imagined’ value of the scheme itself. (what people collectively ‘think’ the value is) Ponzi schemes are based on infinite growth. Bitcoin is the same.

          Thoughts are like a tide. When they change, the ponzi scheme gets washed away.

          Bitcoin is no different

      • Nehemiah says:

        I notice they said nothing about “private.” And I think calling anything conducted over the internet “secure” is a stretch.

    • France’s level of cases seems tp be up on the order of the US Midwest’s right now, which is higher than the US’s overall level of cases. All of these places that damped down cases before are finding out that doing so provided essentially no long term benefit.

      The article’s title makes it clear that debt defaults are a potential part of the problem as well.

    • Dennis L. says:


      Not being an economist, could you give some things that cost less in nominal terms now than a year ago? Here I am looking at everyday things, things most people use in their lives.

      Commercial buildings are down, but during the oil crash in the US, I think it was a fellow named Bass looking at see through buildings in Houston, bought a bunch and filled them.

      Housing prices in the US are going up, Rochester is nutz, earlier I made a list of what I am seeing, very little down and based on everyday purchases, the gross rate was very much up.

      Some of the numbers are made on the last fool in, rents are down in SF, but the bay is still there, it is still beautiful, it is still very expensive.


      Dennis L.

      • Harry McGibbs says:

        Dennls, the whole inflation/deflation/stagflation debate has never been my strong suit and it’s even more complex and bewildering now with the multifarious supply and demand shocks brought on by the pandemic/lockdowns.

        My experience in the UK is that fuel prices are slightly down while food is mostly up (some poor harvests here may be having an effect on the latter). My general and entirely unscientific perception is that life *is* getting more expensive. The weaker £ thanks to Brexit uncertainty may be playing a role in that.

  5. Harry McGibbs says:

    “‘It’s a ghost town’: City of London market reacts to Covid slump:

    ““Hibernating through the winter is not an option for our economy,” warned Catherine McGuinness, policy chair at the City of London Corporation, the Square Mile’s governing body and landlord of Leadenhall market. “We are building up an economic crisis which has the potential to impact more people than the health one. It is vital that we protect livelihoods as well as lives.””

    • Harry McGibbs says:

      “Nearly 300,000 jobs in the UK’s ailing hospitality trade will be lost unless the government moves quickly to save them with a sector-specific bailout, some of the industry’s largest pubs and restaurant groups have warned the prime minister.”

    • London seems to be a little late in figuring out the nature of their problem.

    • Dennis L. says:


      Do most of these jobs even matter? If none of them are done tomorrow, will it make a difference to the real economy? Finance to me appears over, there is no real capital allocation anymore, those with money snap up the good deals before they hit the street.

      If Catherine Mc Guinness never goes to the office again, will it make a difference? Let those affected sweep the streets, it will solve the cost issue regarding gym memberships. The stuff that still matters is still there, it is the overhead which is reduced.

      Dennis L.

      • Slow Paul says:

        I guess one big problem with financial collapse would be the failure of pension plans. These indirectly finances nursery homes as well. At least here in Norway, they will collect 85 % of a person’s pensions (or other income streams) to pay for a stay at an institution.

        • There are two different pension plans here (1) the government sponsored plan, which is basically a pay as you go plan (from contributions from young working people) and (2) supposedly funded plans, typically by prior employers. In a sense, both of these types of plans are in trouble, with the second kind being in perhaps more trouble than the first kind.

          Nursing homes tend to be more expensive than the amount that either type of pension would pay for, unless a person really had a high prior income. There seem to be a number of different programs so that these homes can recover their high costs. A program called Medicaid often pays the cost. This program varies by state. The program might pay for a share of a double or triple room, rather than for a person’s own room, for example.

          I found this link.
          Payment for this cost tends to be a problem.

        • Norway is such a rich country in terms of *wide spectrum natural endowment I would not worry about the collapse itself much, perhaps only tangentially by it severity aspects (e.g. %pop crash, neighbors/invasion, ..).

          * sea shore, forests, river system suitable for low tech waterwheels, pastures, ..

          • Xabier says:

            Quite true: but reading 18th century accounts of Norway (just as in say Switzerland, or the green and well-watered parts of Spain ) life was pretty hard and required great toughness and unremitting industry to prosper at a basic level of necessities – and this is why at an earlier age England was so attractive to the Vikings and the Norse kings.

            The fact that they treated their draught animals – such as mules and horses – kindly, walking beside them rather than riding them, suggests that: they simply didn’t have the abundance of them found in Britain or the Netherlands – the Dutch wouldn’t walk anywhere, even getting dogs to pull them along, very lazy people in that respect!

            And Norway is today grossly over-populated in relation to resources, as everywhere: the elimination of the dependent elderly would be a great help in that respect, and that would come quite naturally with a collapse scenario as sophisticated medical treatments disappear, as to higher general mortality and elimination of weak dependents.

            So yes, perhaps grounds for less pessimism!

            • When my husband and I visited Norway a few years ago, we visited a site that dated from about the year 1000 CE. The settlement seemed to be far behind what was described in the New Testament times in Israel. The cold weather was clearly holding the country back.

              We were also told that the country suffered disproportionately when the Black Death came through. Business people from Germany came up and filled in, because so many of the people in Norway had died.

      • Harry McGibbs says:

        “Do most of these jobs even matter?”

        They matter to the economy when the people who held those jobs can no longer service their debts or consume.

        I would guess that the unhappy unemployed are also more likely to contribute to social unrest or become a burden on the health and legal/penal systems.

        I spotted in the news this morning that Cineworld, the largest cinema chain here, is shutting down its UK operation entirely. It’s scary when entire business models and the people who rely on them for jobs are no longer viable.

        “…the firm is writing to Prime Minister Boris Johnson and Culture Secretary Oliver Dowden to say the industry is now “unviable”.”

        • Xabier says:

          Quite apart from the importance to individuals and families, there is really no such thing as an ‘inessential’ job when the economy has been so completely financialised.

      • Robert Firth says:

        Dennis, thank you, and I agree. These jobs have already been lost; they are now “zombie” jobs, kept unalive by continuous infusions of unserviceable debt. Better to admit the truth, and work at creating new, productive jobs for the workers to move to. For example, how about some apprenticeships? Small classes taught by experienced workers and craftsmen, in areas where there is still demand and where energy can still be used as an efficient multiplier of effort? Or older service industries that do not require contact: tailoring, haberdashery, small household luxuries such as pottery, mirrors, curtains, …

        Yes, it is a descent from video games, integrated resorts, and passenger jet aircraft; but that will happen anyway, and those ahead of the curve will probably be the winners.

  6. Harry McGibbs says:

    “Oil Companies Cut More Jobs As Demand Recovery Remains Uncertain:

    “Suncor Energy is cutting as much as 15 percent of its workforce—a total of 2,000 jobs—as demand destruction and low prices have created an adapt or die scenario for oil companies to contend with.”

  7. Harry McGibbs says:

    “Shipowners are facing rising labor costs as widespread Covid-related restrictions limit movement of seafarers and make crew swaps more expensive.

    “Because relieving and replacing ship workers has become so difficult during the pandemic, daily crew costs have increased 10% from January to mid-July, up to $3,144 for capesize dry-bulk carriers, according to the Baltic Exchange…”

    • Daily crew costs of $3,144? The graph suggests crew costs averaged $2,850 before the latest run-up. How much are these folks being paid? If we multiply $3,144 by 365, we get $1.1 million per year. Some of the unemployed around here might start looking for jobs of this kind.

      • Lidia17 says:

        The daily cost is split between a number of people. Here are some maritime job listings that give an idea of the salary ranges:

        • Interesting! There is quite a wide range of wages, but none of them nearly as high as the average of $1.1 million per year. Of course, the wages include room and board. If a person mostly jumps from ship to ship and stays at hotels in between, he (or theoretically, she), doesn’t even need a different residence otherwise. He doesn’t need a vehicle either. Of course, it is hard to spend much of what is earned that way.

  8. Harry McGibbs says:

    “A world awash with debt: can governments learn to rule while drowning in the red?

    “…If growth, inflation and sustained austerity are all implausible strategies for rapidly dealing with the debt, then one other logical avenue remains open, at least in principle: namely default.”

    • Debt default does indeed seem to be at the end of the road. Default pulls down a whole lot of things, including banks, pension plans, and insurance companies.

      • Robert Firth says:

        Gail, debt is almost always defaulted at the end of the road. It is rolled, and when that fails it is passed around, and when that fails, it dies. Unless of course you can burn your creditors at the stake, as Philip IV of France did.

        • In my academic paper, “Oil Supply Limits and the Continuing Financial Crisis,” I quoted Rogoff and Reinhart as saying in a working paper covering eight centuries of debt repayments as saying, ““It is notable that the non-defaulters, by and large, are all hugely successful growth stories.”

          An economy can repay debt only if it is growing fast enough that the growth allows the payment of debt with interest.

          • Dennis L. says:

            I read that to be the daily cost of crewing a ship, not the individual cost.

            ” These ships can fit much larger crew sizes, but the crew tends to be composed of no more than about 20-30 people. There are usually 6-14 main officers responsible for overseeing each deck, maintaining safety systems, and keeping the ship going. Besides the officers, there will be 6-14 crew members who assist them.Jul 17, 2018″While ship crews have long been sprinkled with sailors from different ethnic backgrounds, the ethnic mix has shifted dramatically. The number of British and American seafarers has plummeted. In 1961 Great Britain had some 142,462 working seafarers; a half century later the figure had dropped to a mere 24,000. That same year the United States owned 1268 ships while today it is less than 100. Only 1% of trade at US ports arrive on American-flagged ships and the US fleet has dropped by 82% since 1951.”

            This is a different source from that below, both have about the same idea. A guess is a crew member can quit any time they wish, trouble comes when one wants to return home.

            “In another cost cutting measure – the frantic global search for cheap labor, while it is generally core, rich countries that own ships (Japan, Germany, Greece, China) they are manned (very few females) by Filipino, Bangladeshi, Chinese, Indonesian labor in the main paid between 10-20% of what the old British and American seafarers make. Not only that. As the number of seafarers decreases their workload increases. There are many accidents, making seafaring, never an easy job, one of the most dangerous in the world.The Philippines has emerged as a major source of seafarers. In 1974 the county set up their first maritime academy. Today there are ninety of them, turning out 40,000 seafarers annually. In 2011 they sent home some $4.3 billion in remittances. These Filipino and other Asian seafarers are a part of an increasingly apartheid like labor system, where the captains and officers on ships are almost always European, the crews Asian with little chance for advancement”

            While ship crews have long been sprinkled with sailors from different ethnic backgrounds, the ethnic mix has shifted dramatically. The number of British and American seafarers has plummeted. In 1961 Great Britain had some 142,462 working seafarers; a half century later the figure had dropped to a mere 24,000. That same year the United States owned 1268 ships while today it is less than 100. Only 1% of trade at US ports arrive on American-flagged ships and the US fleet has dropped by 82% since 1951.

            In another cost cutting measure – the frantic global search for cheap labor, while it is generally core, rich countries that own ships (Japan, Germany, Greece, China) they are manned (very few females) by Filipino, Bangladeshi, Chinese, Indonesian labor in the main paid between 10-20% of what the old British and American seafarers make. Not only that. As the number of seafarers decreases their workload increases. There are many accidents, making seafaring, never an easy job, one of the most dangerous in the world.The Philippines has emerged as a major source of seafarers. In 1974 the county set up their first maritime academy. Today there are ninety of them, turning out 40,000 seafarers annually. In 2011 they sent home some $4.3 billion in remittances. These Filipino and other Asian seafarers are a part of an increasingly apartheid like labor system, where the captains and officers on ships are almost always European, the crews Asian with little chance for advancement


            • Your interpretation is no doubt correct.

              I can believe that these ships are now sometimes understaffed, making accidents of various kinds more common. I am sure that in the small quarters, there is not room for a “men’s room” and a “women’s room.” Having workers with very similar needs helps keep down costs.

    • So it is vegetables, besides pork, that are problems. I hadn’t really connected it to the vegetable problem.

      • Xabier says:

        Might be seen to be in the interest of China, therefore, to seed COVID throughout the world (remember how they insisted that unrestricted flights should continue and the WHO supported them?) and hopefully benefit -eventually, this is a mid-term game – from reduced competition due to initial deaths and lock-downs, and, much more importantly, the cascading implosion of rival advanced economies -which would itself lead to accelerated population decline and less pressure on food supplies?

  9. Sven Røgeberg says:

    i am working on an essay which i was thinking beginning like this:
    The implosion of capitalism triggers political psychoses
    Black Lives Matter and a Green New Deal are manic reactions to the ghosts that haunt the capitalist world: declining profits, declining productivity and failed values.
    At the end i have some thoughts about the GND and the Modern Money Theory:
    The basis for the idea of ​​a green new deal is a so-called modern money theory, Modern Money Theory (MMT). This theory has the same basic view as John M. Keynes, who believed that digging up hypothetically hidden bags of money in the coal mines would have the same economic effect as the coal itself.

    Keynes helped turn the relationship between energy resources and money upside down, so that he could use the sum of money transactions as a measure of economic activity. Thus arose a new science – economics – and by extension an economic policy, which was concerned with regulating the money supply in the economy.

    Supporters of a green new deal, such as Rethinking Economics, stand by this Keynesian tradition. According to MMT, a state that issues its own currency does not need to get into debt in the international financial markets.

    The argument is that with spare capacity and low inflation, the state can print money and spend it on a green shift, without this leading to a weakening of the currency, at least not in the short term. In the longer term, however, this depends on the green investments becoming profitable.

    However, there is little reason to believe that billions for so-called green transition and circular economy can stagnate the decline in both labor and capital productivity that has also occurred in well-organized countries such as Norway with high confidence and low levels of conflict, and despite digital IT the revolution.

    Money is a symbolic representation of physical energy flows, and a post-war Keynesian-inspired policy only worked as long as the economy had access to a new cheap fossil energy source – oil – in addition to coal. Keynes was lucky.

    I do not think it was a coincidence that the United States left the gold standard at about the same time as conventional oil production reached a peak. Since then, debt growth has been necessary to compensate for increasingly expensive and more complex fossil energy extraction.

    MMT is a kind of logical consequence of the implosion of fossil capitalism, because according to the theory, a monetary sovereign state does not have to demand that those who use the printed money pay them back with interest. Thus, one can say that one has freed oneself from the environmentally destructive growth constraint, even though one will soon experience the consequences of the objective economic value of so-called renewable energy being vanishingly small, compared with fossil fuels.
    Please feel free to comment and criticize!

    • apart from diehard doomsters in OFW, it is impossible to convince people that (infinitely) increasing prosperity is entirely dependent on (infinitely) increasing supplies of cheap fungible energy resources.

      To quote a cousin of mine, who had control of a multi million municipal function of a large town:

      “what’s energy got to do with it?”, was the reply when I tried to put over the above reality.

      No intellectual slouch, obviously, but he simply did not understand the correlation between capital and energy. That without energy input,, the capital of his town would cease to be.

      And given that wall of stupidity, it is impossible to explain the problem in understandable terms to the majority

      That said, fossil fuelled capitalism is bound to implode. And as it does so, governments will print money to make up the shortfall in values. (they have no other options)

      As that too fails, physical confict is inevitable, and will go on until the economics of the global system rebalances itself.

      Whether that ‘rebalanced’ system includes humankind is anybody’s guess. As things stand right now, one gets the impression that the last man standing will cut down the last tree standing in order to cook his dinner.

    • Robert Firth says:

      Sven, tank you for your analysis. And once again, I shall respond with a comment from one wiser than I: “You can avoid reality, but you cannot avoid the consequences of avoiding reality.” (Ayn Rand)

    • I see added debt as a promise of future goods and services, made with energy products. When there really is inexpensive to produce energy products, the added demand created by this debts (for example, for new cars and homes) can help bid up the price of energy products. Because of this higher price, more energy products can actually be produced.

      Unfortunately, we went past the “enough is enough” point in 2008. There was too much sub-prime housing. There was too much credit card debt. The debt bubble was burst in mid-2008, and the price of oil dropped dramatically. It was only when the US started Quantitative Easing near the end of 2008 that oil price started to rise again.

      Later, when the US phased out QE in 2014, prices dropped dramatically, proving for certain the connection of oil prices with QE. When the US Central Bank later tried to sell off some of the securities it held Bank (late 2018?), the stock market started to “tank.” It then became clear that selling off these securities was not possible. The stock market really needed to support of these securities held by the central bank.

      Renewable energy doesn’t really have any reasonable return. Electricity generation ideally needs to be able to follow the demand of customers. If it can’t do that, a level load, which fossil fuels can add to, also works well. The random generation of wind, and the solar generation at times it is not needed or wanted is not helpful at all. It would need to be greatly buffered by batteries or something similar, to be “sort of useful.” Even this is not very useful, unless renewable energy is “dirt cheap” to produce and (as I discuss in the next two paragraphs) can be sold at a very high prices as well.

      There is something I didn’t stop to think about until recently. Oil is the product that historically customers would pay large amounts for. A large percentage of these high prices went into taxes of various kinds. These taxes, in a sense, represented at least part of the surplus energy oil was able to generate. Some of high prices went into dividends to shareholders. These shares were owned by pension plans. In a way, these oil profits thus helped to subsidize pension plans.

      When people talk about electricity replacing oil, they lose sight of the fact that the price of oil has historically been hugely higher than the cost of extraction of oil, so that the energy surplus could be returned to the rest of the economy. If renewables are to replace oil, they really need to replace this function as well, playing high taxes and lots of dividends. Instead, they need subsidies and more subsidies.

      • Great observations, I recall one poster (sorry name escapes me) was vehemently recommending to short oil after the ending of QE phase ~2014. Very good actionable prediction in the hindsight..

      • Artleads says:

        Thanks. As a mostly uncomprehending observer re industry details, this seems like one of today’s posts that comes close to being comprehensible to the interested “outsider.” I wonder if there’s a point to clumping these posts together into a kind of booklet could help?

      • Dennis L. says:

        Were one to take today’s notational wealth(assuming one had some) and “invest” it in solar, might that be better than nothing?

        Gold seems to have carrying costs, at the extreme bury it and forget where it is, more reasonable, build a castle to protect it along with associated soldiers, etc.

        Crops are a well known method of solar collection with storage issues as well, rats, thieves, rot.

        Perhaps mitigation is all that is possible, solutions are not obvious.

        Dennis L.

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