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.

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About Gail Tverberg

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

2,450 thoughts on “Reaching the End of Early Stimulus – What’s Ahead?

  1. The U.S. would seem to have a particular vulnerability to a sudden collapse of the current global system with the U.S dollar and U.S. Deficits and Debt at the core of this system. The contrary view is that the U.S. as the global hegemon can be the last man standing because it is at the core and not the periphery of this system. I have no clear idea. Maybe no one really does. It is hard to think however that the U.S. can continue to take advantage of this system by “printing” money and covering holes in its economy (consumer loans, mortgage payments, rental payments, unemployment insurance, etc. etc.) without consequences. But so far, so good. Maybe for a while longer. I am hoping for the best, but preparing for shortages and a lower standard of living.

    • the US has lots of coal, oil, and natural gas, and wood and fresh water and farm land.

      perhaps then “we” are less susceptible to sudden collapse. We might just be the center-of-The-Core.

      real resources are the base of the economy, not money.

      but yes, if “they” lose control of the money subsystem, then who knows.

      • or to use Gail’s words:

        “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.”

        2020 looks like “decline”, but from the point of view of 2030, it might be the consensus view that 2020 was the first year of sudden collapse.

        but so far, so good.

      • doesn’t matter how much raw energy is available in the form of FFs or renewables, if the means isn’t there to convert that energy into something else, and more importantly, there are people willing and able to buy that ‘something else’, then the entire economic edifice collapses.

    • The currency problem can really be overcome when you use a Central Bank Digital Currency for domestic use and another currency for international use. The question I see: How will they work at the “border”;
      @Gail: How should a payment for fuel at the gas station should be accounted for if the car owner only has domestic currency but the fuel needs to be paid in international currency?…

      • The car would be confiscated at the border, I expect. A major reason for the different countries and the different currencies would be to impede the flow of people and resources from one area to another.

    • I don’t really know.

      The Soviet Union was a big energy producer and consumer when it collapsed in 1991, besides being an exporter of energy. The US now is a big producer and consumer of energy. It could be argued that the US needs to get rid of the least efficient energy consumption. Thus, perhaps it could survive by jettisoning some parts that are unsustainable. The Northeast would seem to be one such area. Financial businesses will not be very sustainable in the future, for example.

      I don’t know about the West Coast. It has been built on fire suppression and inadequate energy supplies. Fire suppression cannot continue indefinitely. With its mild climate, it can get along with less energy supplies than most other places. But it doesn’t really have enough energy supplies going forward. It is hard to pipe oil supply uphill to the West Coast, for example, and the area has had problems with natural gas storage. California also has water problems. The West Coast may need to be a country of its own.

  2. You are connecting the COVID (and climate…) crisis with the emerging lack of energy resources. I totally agree with you on this. Brilliantly analytical in a subtle way, not to provoke the governments. Thank you.

    • It is hard for me to understand how the academic world is so terribly divorced from the real world. They seem to be so busy writing academic papers that common sense gets lost.

      It didn’t help that attention was placed on Energy Return on Energy Invested and other similar quantities such as “Energy Payback Period.” This took attention away from the quantity problem, for one thing. It also is very difficult to quantify and compare similar items and to determine lower acceptable bounds.

      The “Levelized Cost of Electricity Production” is another metric that gives a falsely favorable view of wind and solar.

      The fact that people studied the situation without understanding the system it was a part of created a great deal of the confusion. Of course, since politicians were interested in finding a “winner,” the only people who were listened to were ones that seemed to indicate that a favorable outcome was quite possible.

      • “It is hard for me to understand how the academic world is so terribly divorced from the real world.”

        Not if one has lived in the academic world. I had that dubious experience at a US university, and disliked it on a daily basis. For example, it hosted the (world famous) Robotics Institute, that spent eight figures of US taxpayer money, and never produced a single working robot. But produced a lot of academic papers on how to build robots.

        However, there was a worse experience: working for a company founded by a university professor and staffed almost entirely by his graduate students. Who else could have written their own text editor (why?) that started by building a syntactic map of the text, and deleted blank lines because they were not considered part of the syntax. Open your document, and the paragraphing evaporated.

        I do not know which was the more compelling lesson: that they were stupid enough to do this, or that they were even too stupid to observe what they had done and know it was stupid.

  3. I’ve been trying to calculate whether to expect a fast collapse or a longer drawn out collapse. Gail’s article gives me hope that a slow collapse is in the works but Norm aptly points out it wouldn’t take much to turn that into a fast collapse. What’s a doomer to do? I now have the family summer home( Doomstead) just about ready with the solar system up and running and the pumps have been switched out to 24 volt the hidden garden is producing nicely and the chainsaw is at the ready to bring down trees across the roads to ensure any visitors are few and on foot. I do believe a faster collapse would certainly escalate the chaos up to a point where chances of survival becomes slim. We are a family of builders and farmers who hunt and fish for recreation (#2 son just returning from a hunt with 1 moose and 2 elk) so I think our location here on an island on the west coast of Canada we have as good as chance of any of getting through this impending bottleneck. It would be interesting to hear others plans

    • More guns and ammo is always a good answer.

      Modern, eco-sensitive doomers should add lots of solar panels to the mix.

      Key question: Is your bunker air conditioned?

      • Simple question, not an argument. If guns worked why are Lebanon, Syria, Iraqi and Afghanistan such hell holes?

        Dennis L.

        • Most of these places were more economically central centuries ago, before being marginalized when global trade shifted to sea routes. (Oil made up for that in Iraq, but turned it into a resource economy.) Also, the assumption that ethnic groups ought to have their own state has caused conflict in each of these, where the boundaries are often very artificial. A certain amount of social cohesion is perhaps even more important than guns!

          • I’d suggest that those places becoming more and more desert over time also makes them less desirable and unstable. Unless you have cannons that fire dry ice, guns are not much of a solution for drought.

    • Jarvis,

      A guess collapse will not happen all of a sudden and it is already happening. A drive down Lake Street in the Cities, for those who made a living there, collapse has come and for many it is complete and recovery not possible.

      It is my opinion that family and a group will be very important going forward, we do not live long along – somewhere I picked up the idea that mountain men lived to about 37 or so, hard life with accidents.

      Dennis L.

    • @jarvis “I’ve been trying to calculate whether to expect a fast collapse or a longer drawn out collapse”. I can tell you this with certainty, because I’m an engineer and I study such things for a living. The more complex the system, the faster it will fail. IMHO, we’re looking at a catastrophic situation. Few of us want to believe it’s happening.

      • I see no value in planning for a fast collapse.

        that eliminates one of the two choices.

      • Thank you, Tim. But perhaps you should read Arthur Koestler’s little essay on Bios and Mekhos. It is part of his “The Ghost in the Machine”, published in 1967.

        To summarise: biological systems can be extraordinarily complex, think of a climax tropical forest, but they are also very stable. Mechanical systems, on the other hand, as they become more complex, introduce more single points of failure. A few episodes of “Air Crash Investigation” I think provide a good introduction to this problem.

        So yes, you are quite correct. But the problem is not with the complexity, but rather with the “technological hubris” of its builders.

        • @Robert Firth Yes, I would agree with you. There are many intelligent people who post here. The 1% are not stupid. They know the system is in failure mode. What I observe are extraordinary attempts to loot the USA and keep the terminal patient alive for a while longer. Let’s not kid ourselves or try to deny we are in for a rough ride. That type of thinking only puts our families in jeopardy. Not being able to feed my children is not an option for me. I’m preparing. Mock me if you wish, but don’t come to my house when the trouble starts.

          • Thank you, Tim. Quite by chance, tonight was another episode of “Air Crash Investigation”. A two engined turbo prop crashed in Taipei, 43 dead. The failure mode was initiated by a failed solder joint in an electronic widget, perhaps caused by contamination during manufacture,

            The context: a turbo prop has two main components: the turbo, which spins, and the prop, which is driven by the turbo. But what if the spinning stops? Ah, they thought of that. There is an electronic sensor, that monitors the spinning of the turbo, and if it stops spinning, the sensor orders the prop to feather. The problem? The sensor failed, and feathered the prop while the turbo was still merrily spinning.

            Think this through. If the turbo stops, the prop will be spun by the airflow, and cause a very, very small amount of drag. But if the prop feathers incorrectly, you lose the half the propulsion of the aeroplane. And that is exactly what happened. Any realistic formal safety analysis, based on cause/effect tracing and risk/consequence analysis, would have told them this was blind stupid. But they built it anyway.

      • I’m an old engineer and now I can’t stop looking at machines thinking what will break first and how long will it take. Thus, my 1984 Hilux is electronics free (and amazingly, parts are still quite easy to get).

    • Well if you are thinking about chain sawing trees to block the entrance to your doomstead I guess you must be expecting a fast collapse. In that case you need to be prepared to provide for your families needs 100% from your own gardens and hunting and gathering from your surroundings. I can only speak from my personal experience at homesteading for the last 20 years and say I don’t think you will make it. One bad harvest season and you will be out of luck. Not to mention having to defend yourself from invaders 24/7. I think you better hope for a slow decline or else have a convenient method of ending your misery.

    • I don’t know. Usually, it is difficult for a single family to survive by itself. There really needs to be a community that provides everything that is needed. Repairs are likely to be a problem. Injuries are likely to be a problem. Eventually, ammunition is likely to run out.

  4. I visit a lot of stock trading and financial sites. Most of those I follow are predicting a deflationary situation over the next year or so, and then hyper inflation to follow. It seems to difficult for me to see how hyper inflation is even possible at this stage.

    • I’ve run across the theory that we’ll see hyperinflation for necessities, and deflation for everything else. Is that plausible?

      You’d think that government money-printing would be inflationary, but there’s been some speculation recently that it’s not, under present circumstances. Strange.

      • the trillions of gov money seems to go mostly into assets such as stocks and real estate, so those sectors indeed are “inflated” far above where they would be without the MMT more money today.

        otherwise, the prices of concert and sports tickets are way down, like ahem almost zero.

        and food prices are up, but I don’t see why there would be hyperinflation.

        • If we adopt Dr Keltons modern monetary theory and really crank up the printing press even more we could at least get stagflation and even hyperinflation. Universal basic income, black reparations, student loan forgiveness, bailing out big city budgets and pensions, and big infrastructure programs could do it. Thank goodness we’re exceptional and god is on our side because it’s always led to to disaster if you study monetary history.

      • There is a difference between the means of production and the produce. It is the end of bourgeoise consumerism. TPTB and the artisanry is running the show now.

    • Not sure what items they are predicting, personal experience:

      1. Used machine tools are up in strong auction markets.
      2. Used combines are finding a pricing floor
      3. Building materials in the Rochester, Mn market are up, 3/4 OSB is up 100 percent since March of this year, when it can be found. New houses are sitting with partially finished roofs, OSB not available.
      4. Used houses in Rochester are up, hate to use a percentage as it is a guess, but maybe 20% in the last year.
      5. Zerohedge had an article on the used car market, it has firmed.
      6. Farm land is strong in our area
      7, Sites claim food is up, I don’t track that carefully, but it seems about right.

      In Rochester strip malls near me are more than 50% vacant, guess is rents are down, there is a continual building of large, very expensive to rent apartment complexes, don’t have a clue on that one. If I recall correctly, over 2,000 units have been built in the last year alone.

      All this debt has to go someplace. This whole thing is hard to figure out, my goal is to still be standing if it all comes down, a few bruises and scrapes are part of life, live to fight another day. The trick is to have a place to stand.

      Dennis L.

      • Good points, valid throughout the world though.
        For one thing, despite the “post-industrial age” there is not insignificant pool of trades, artisan, or just biz savvy people always with money aside for the needed big item tool etc., they snap it immediately when available at discount, then it becomes unobtanium and lost bitter opportunity for the late bidders. The same for land. Also the same applies to some extent for arts collectibles and so on.. and specific micro segments/ items on the used car market.

        In short, classic case of human / nature (species behavioral patterns).

        Obviously, in case of hard/fast depop, most of the available stuff around is left to decay, it’s abandoned, occasionally partly re-purposed, only the top niche items/properties retain value – occupancy.

        • Try buying a well-maintained old car or any ‘classic’ item for that matter, that stuff ain’t cheap anymore. There is a boom on YT where the artisanry renovate old stuff, electronics, cars, motorcycles, you name it. It is going wild.

          The last time I bought something taxed was a bicycle. Apart from that, it is all tools of the trade.

    • Kirk, I’m not a modern economist, but your thoughts resonate. Hyperinflation is when you need lots more money to buy anything tangible. I don’t see that. What I suspect we will see is demonetisation: societies will reach a tipping point where money will buy nothing, and trade will be conducted by barter of goods or services.

      I saw that happen in Africa during a tribal disagreement; the government currency was totally mistrusted, and many young women were left with only one commodity to barter.

    • I am not sure how this all works out.

      I think of hyperinflation as occurring when one country is doing particularly badly, compared to the rest of the world. Their currency drops greatly, relative to other currencies, making imported goods very expensive. The government tries to help by issuing more money, and this causes the currency to drop further relative to other currencies. One of the missing goods is likely to be food. Unless, there is a huge amount of locally produced food of many types, there is no way the money printing can fix the problem with the unavailable food.

      While there will be individual countries that have problems at first, it seems like that at some point, the overall system will start to unravel because of international trade problems. That will be when individual countries have to somehow unveil new financial systems for their economies. With less international trade, people will have to spend a high proportion of whatever income that they do have on necessities, including food. Other goods will tend to disappear from the shelves.

    • Hyperinflation will begin when the FED starts UBI with digital dollar. Just deposit made up numbers in everyone’s account. Supply will be way down though, driving the price of most essentials through the roof. The FED is talking about it constantly now.

      Of course, you will see deflation in fictionalized assets also.

  5. Your thoughtful analyses are always appreciated. While it may appear to some readers that you are unduly pessimistic, it appears to me that you usually get things right. Thanks so much for taking the time to prepare these articles. I am 75 years old. My wife and I do not worry so much for ourselves, but we are worried for our children and grandchildren. These are truly “interesting times” in the sense of the ancient Chinese proverb.

  6. Hi, Gail. When you wrote “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”, that left me feeling hopeful that somehow local economies, all else being equal, would be able to make a go of it. I’ve been working in my own local community to increase food security, e.g., a seed library, seed swaps, plant swaps and crop swaps. I appreciate your comment. Thank you.

    • The big issue I see is that local economies will not be able to provide enough food for everyone, as fossil fuel supplies disappear and as parts for machinery break. Even “organic” food is produced using fossil fuel energy. Organic food has its own supplements and sprays; it depends on irrigation, very often.

      The big question becomes one of what to do, when there is not enough to go around. Cuba has a two currency system. They buy international goods with US$, but the people only have access to the local currency. Cuba also has stores where people can go to buy ration amounts of basic food supplies at very low prices. I suppose as long as there is almost enough, rationing might work.

      The system has to break down when there is not enough to go around. Some disadvantaged group has to be left out.

  7. Gail, thank you, there is much to chew over there in the coming days.

    Two of the trends that you mention very much stand out already in UK and we can expect the trends only to become stronger with global economic downturn.

    i) The break of countries (or Unions) into smaller units.

    Unions are often formed in times of economic expansion. That was the case with the UK as the British Empire was militarily dominant and it consequently dominated world trade. Scotland was able to share in that growing wealth by joining in a union with England. It was also the case with EU as international and global trade expanded, on a new basis, after WWII.

    However, the BE is now long gone and international trade is conducted within a very different scenario, in which smaller countries are able to do well by networking with others (like in EU). Thus the original rationale for the UK is already gone, and the rationale for Scotland to leave UK, so as to remain networked with EU remains (in their estimation.)

    The coming global downturn will change the rationale but it will also tend to reinforce the same tendency to break up UK.

    a) physical dynamics

    The complexity of dissipative structures increases to allow for an increased dissipation of energy (that is true politically as well as biologically and cosmically), and political structures will tend to simplify in order to adapt and to maintain dissipation as that recedes. Thus physics and human social adaptivity suggest that the layers of political complexity involved in centralisation will tend to be stripped away as energy becomes unprofitable and wealth scarcer.

    b) political and economic dynamics

    Also, scarcity leads to intensified competition and we may anticipate that will be true also on a regional basis within countries. Regions that do well may be less inclined to ‘share’ their wealth, through central state taxes, with less productive and prosperous regions. Thus the English, especially around London and the South, may be less happy to ‘subsidise’ the less productive regions of northern and middle England and Wales and Scotland. The same may be true elsewhere, such as eg. with Catalonians who disproportionately subsidise the less developed and productive regions of Spain.

    On the other hand, scarcity can prompt increased self-dependence. The less productive regions may feel an heightened impetus to take more responsibility for their own development, to cut dependence on richer but declining and ever less generous regions, and to focus on maintaining and developing their regions themselves as best as they can.

    c) the accordance of physical and political dynamics

    Thus the dynamics of political and economic integration and dependence are radically altered to match the change in the underlying physical (energetic) dynamic. The one, we may say, is reflective of the other. The ideological and political dynamic reflects the material economic dynamic and ultimately the physical dynamic by way of the economic dynamic.

    Thus the tendency since 2008 toward Scottish independence is in accordance with the alteration of deep underlying dynamics and it is suggestive of an intuition on the part of Scots.

    The latest news is that Keir Starmer, the new leader of the Labour Party is open to another referendum on Scottish independence. He insists that an SNP majority in Scotland is a mandate for a referendum that cannot be refused. LP may want to enter into a pact with SNP to form a Westminster government after the next GE.

    Thus UK seems to be ‘ahead of the curve’ by way of its movement toward its own break up.

    ii) The disentanglement from international trade.

    Very briefly: unprofitable energy, global downturn, scarcity of well-paying jobs, political hostilities, the imposition of tariffs, the relocation of jobs domestically – Brexit, the refusal of EU and USA to make trade deals without dependence on integral UK-EU WA and GFA, which TP refuses.

    That is suggestive of intuition on the part of the English, as is the lessening of support among the English for the Union and a decreased willingness to subsidise the other countries of UK.

    Thus the English too may be said to be ‘ahead of the curve’ in their tendency to anticipate the outcome of impending dynamics, political, economic and physical.

    The break up of UK and the failure of TP to secure post-Brexit trade deals are exactly what we would expect according to the impending dynamics that you have highlighted. It is curious that UK thus seems to be ‘ahead of the curve’.

    Thanks, Gail.

    • “The break up of UK and the failure of TP to secure post-Brexit trade deals are exactly what we would expect according to the impending dynamics that you have highlighted. It is curious that UK thus seems to be ‘ahead of the curve’.”

      I’m guessing that as we were the first nation to industrialise we will be the first to de-industrialise – we were probably the first nation to consume the vast majority of its anthracite.

      I think de-centralisation is the model going forward, based upon our dwindling fossil fuel reserves (both globally and nationally). My assumption is that had the EU referendum in the UK been conducted prior to 2005 then ‘remain’ would have won. After 2005, energy consumption per capita begins its decline and so goes individual prosperity. Curious that we always talk about a living wage and not a living energy allowance… Although, now that I think about it, it isn’t so curious at all. Currency is cheap, energy stores which take thousands of years to form not so much…

      I never subscribed to the swash-buckling, trade deal making arguments of Brexiteers, that is probably a bygone age. My reasoning was more toward a peaceful transition – resulting in more responsive (localised) systems.

      Also, I’m not sure why you continue to make this point:

      “Brexit, the refusal of EU and USA to make trade deals without dependence on integral UK-EU WA and GFA, which TP refuses.”

      As far as I understand, the fat lady is yet to sing on that one.


    • Scotland is now more than any time in the last 50 years dependent upon England for funding. The idea that Scotland with its large geographic spread, along with an ageing and obese/unhealthy population is a viable nation in the coming decline is laughable.

    • I think the reason why the UK is ahead of the curve in terms of its breakup has to do with energy consumption per capita falling faster in the UK than elsewhere, with the North Sea oil declining.

      This is a chart from a couple of years ago.

      • Yes, Gail seems to have hit the nail on the head again, thank you, Gail.

        Less energy dissipation per capita implies a simpler, less centralised dissipative structure and the break up of UK into its simpler, regional dissipative parts.

        UK is ahead of the curve in terms of dissolution, and adaptation to a regionalised future, because it is ahead of the curve in decline of energy per capita. The one is reflective of the other.

    • As I read this article, the it claims that the Federal Reserve is planning to create separate accounts for each person, and deposit funds into them, in time of recession.

      These accounts would eventually completely replace people’s bank accounts. In fact, banks would be “out of the loop.”

      It sounds like the second type of money I was talking about. Give it to everyone; then get rid of the old type of money that everyone has. So much for the theory of “Money is a store of value.”

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