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. Yep, there we go. LP is now ahead of TP in the latest poll. TP had a 26 point lead in the polls just five months ago – and now they are 3 points behind – 29 points in 5 months.

    LP seemed finished after the 2019 GE and talk was of them being out of government for decades. So much for that.

    I said as soon c19 struck that TP simply could not expect to get elected at the next GE after overseeing the crisis. It was a harsh but it seems realistic assessment.

    None of this will help Boris to get his Brexit line passed the backbenchers.

    Frankly Boris looks shattered, as everyone is saying. As I said, anyone who goes into public life these days needs their head examined, let alone PM. He will never again be able to live a normal life without security.

    Labour take poll lead over Tories for first time since Boris Johnson became PM

    Labour have moved ahead of the Conservative Party for the first time since Boris Johnson became prime minister, an opinion poll has indicated.

    The survey by Opinium for The Observer newspaper gave Labour a three-point-lead over the Tories, with 42%, compared to 39%.

    It suggested Labour was ahead for the first time since July 2019 – when Theresa May’s time in office was nearing an end – and that there is more support for Opposition Leader Sir Keir Starmer than Mr Johnson.

    The poll also found 55% of voters think Sir Keir is ready to lead the country and 40% believe Labour is equipped to form the next government.

    It is the latest poll to suggest waning public confidence at Mr Johnson’s – and the wider government’s – handling of the COVID-19 pandemic.

    Earlier in the year, 65% of voters surveyed backed the government’s handling of the coronavirus crisis, but in June, a YouGov poll for Sky News found the majority of Britons (51%) believed the government was handling it poorly.

    And the latest poll showed that approval for the Johnson administration’s management of the pandemic had dropped to 30%.

    • The advance of LP in the polls puts further pressure on Boris to allow Indyref2 in Scotland. Starmer has said that he would allow Indyref2 if SNP wins a majority at the 2021 Holyrood elections, which looks very likely. LP may want to enter into a pact with SNP on that basis after the 2024 GE to allow LP to form a Westminster government, in return for Indyref2.

      Boris has the choice either to allow Scots their referendum on UK membership or risk LP winning the GE in 2024 and them letting Indyref2 go ahead. Boris would be doing SNP a massive by putting Indyref2 off for a few more years. Support for the UK is highest among the elderly, so the delay would just give more time for the demographic shift to take place.

      Support for independence is already at 55% in the polls, and it could easily pass 60% within five or six years, by the sheer force of demographic shift. If Boris were smart, he would allow Indyref2 to take place within two years of May 2021 – rather than of May 2024. That would be his best chance of saving the UK for a bit longer.

      It would be difficult for SNP to demand a third referendum within a decade of Indyref2, and who knows what would happen in that time. Otherwise, UK break up may not occur on Boris’s watch, but it would still be due, more or less, to his lack of strategy. In any case, the ‘stars’ seem to be converging in favour of an independent Scotland.

      Sir Keir Starmer stands by claim SNP would have mandate for indyref2 if they win Holyrood elections

      …. But, pressed repeatedly on the issue, Sir Keir stood by his remarks from January, prior to becoming Labour leader, that – should Nicola Sturgeon’s party win a majority at May’s Scottish Parliament elections – then the SNP would have a mandate to hold another referendum.

      “These issues are questions for Scotland, I do stand by that.”

    • Keir “is either a locational surname from the village of Keir in Stirlingshire, Scotland, or alternatively it is from “Ciar”, a Gaelic personal name of the pre 10th century meaning dark or swarthy.”

      That should please the Scots. How many Sots would want to stay with the Union if they thought the UK was going to be run a Labour party in the moderate social democratic mode? Or is the nationalist trend too far entrenched now?

        • Keir Dullea. I do indeed. He is in that eerie scene in ‘2001’ where Hal the computer sings ‘Daisy, Daisy’ as it has its circuits removed. In 2012 I was visiting my mother in the old people’s home. She had Alzheimer’s, and for some reason she kept singing the full lyrics of ‘Daisy, Daisy’ that day, over and over again. It spooked me and irritated me in equal measure.

          The other Keir is Keir Hardie, of course – a Scot and the first leader of the Labour Party in the UK.

    • The Express has sort of picked up on the story but only with a view to firm up TP over LP support in Scotland.

      The problem that TP has with the following line of argument is that TP itself caved in and allowed Indyref ‘at the first chance’ in 2014.

      Some in Scotland may now be inclined to vote TP over LP (not that it would much difference to electoral results there), but it would not be because of any supposed unblemished, staunch unionism on the part of TP.

      Without Indyref1, there would likely have been no Indyref2. Support for independence rose by 25 points during the 2014 Indyref1 campaign, and it has continued to rise since.

      TP has got no one to blame but themselves. “The lady doth protest too much, methinks.”

      > “Yet again, Labour are proving they’re too much of a mess to stand up to the nationalists.

      “They’ll give in at the first chance they get.

      “The Scottish Conservatives are the only party who will stand up for the United Kingdom every time.”

      • The UK general election results in Scotland are interesting.

        Seats: SNP 48; Toryservatives 6; Lib Dems 4; Labour 1.

        Now consider the distorting effect of the first-past-the-post electoral system.

        Votes (%):

        Seats: SNP 45%; Toryservatives 25.%; Lib Dems 9.5%; Labour 18.6%. “Others” bring the total to 100%.

        So, Labour got almost twice as many votes as the Lib Dems but only a quarter of the seats / MPs. Laughable!

        Maybe Scotland should sell itself to China. But then it would have to change its name to ‘Scot-rand’, to prease those Chinesies.

        • FPTP is a sick joke and an insult to democracy.

          UKIP got 12.6% of the vote at the 2015 GE and just 1 seat, while Lib Dems got just 7.9% of the vote and 8 seats – 12X as many seats per vote as UKIP.

          The best chance for electoral reform (PR) seems to be Farage. If TP flunks a proper Brexit then Farage will be well placed to stand the 2024 GE with his Reform Party. I almost hope they do flunk it, because PR would be a more serious democratic gain than Brexit.

          Likely Farage will get plenty of support anyway if he stands against PC and cancel culture and for PR, free speech and liberty at 2024 – especially after the c 19 lock down.

          Hopefully Nigel will also put in place a system of referendums, whereby a certain number of the demos can force a referendum on any matter whatsoever, binding by law. Now that would be democracy.

          Nigel would get my vote on that basis every day of the week.

          Likely TRP would suffer from FPTP in 2024 but they could eat into TP support enough to force them to concede a referendum on PR like they did with Brexit – and then we can take it from there.

          Of course, TRP support would make an LP victory more likely in 2024, so we would have to decide what matters more to us as voters, PR and risk Indy2 or not.

          Again, the ‘stars’ may be converging for Indy2.

        • “Scotland” in phonetic Chinese is “Si Ko Te Lan.” Presumably it would at least be a Special Autonomous Region.

    • Not sure what energy has to do with it.. to the contrary, actually their turned disadvantage into their favor. Austria invested in the European gas networks, and “her” banks juice out a lot of money (skim surplus value) from the region, i.e. from neighbors with any energy be it coal or nuclear which cheaply manufacture for the W. markets, ..
      Basically, the old historic pattern resurfaces now, small tiny Austria living (partly) off huge pool of not so smart Eastern and Balkan Slavs who entered the union, receive token redistribution but much bigger outflow of dividends ends with (re)new owners be it Austrian bankers and such..
      In terms of Mr. Kurz he smartly navigates against the self destructive migrant welcoming culture and policies of Germany and others..

      • Austria is in the same region, i.e. Central Europe, without the immigration, its population is sharply down. And you should take into account all that migrating workforce, too, that keeps this energy poor country functioning.

        Its standard of living is high, because it has got somewhat central position, but it depopulates and the population concentrates in Vienna, like the population of Slovakia moves to Bratislava. Bratislava, Vienna and Budapest are the core of the Central Europe, where the rest of the countries depopulates, no matter how different the GDP of these countries is.

  2. I wonder if anyone has considered that civilization is only possible with continual growth in both debt/money and energy use. Without continual growth of either, civilization itself is not possible as it all collapses. I use debt/money as one in the same, as they are both just constructs of human imagination.

    We use increasing debt to pull future use of resources into the present, which gives us growth each year, by using more resources (especially energy) in the process. All current debt can only be paid off by increasing future debt, but must be accompanied with more energy use or increased efficiency, to make energy more useful. A larger system after ‘growth’ uses more energy.

    We reached a barrier at some point with more net energy per capita, not able to grow because of increasing ECoE leaving flat or falling net energy for the rest of society outside of ‘energy production’. The energy source with the greatest growing energy cost of extraction is oil. But a part of the overall reduction of net energy per capita, is the ‘fossil fuels are bad’ thinking which has limited coal production and use.

    Economists and governments of course did not recognize this, thinking that growth just depended upon money use, so print more to increase economic activity. Instead we had inflation, both in raw resources (2004-8), and assets as well (2004-20). We also had massive inflation in the cost of buying a retirement. Governments of course hide the real inflation behind ‘CPI’ readings that exclude these inflationionary costs.

    If any new debt was suddenly banned, civilization would quickly collapse as hardly anyone could pay for large items (houses, businesses, autos etc) out of ‘savings’. What economists call the multiplier effect would quickly turn to a divider effect with the whole civilization collapsing over time.

    When it is hard to see an effect, say of less debt or energy or anything else, I always look at the extreme example, instead of a small increment; as this clearly shows the direction of minor changes, which can be difficult to read because of the shadowing effect of complexity.

    In ancient civilizations there were debt jubilees to reset the system, which was fine if there was no limit on energy, but for modern civilization where we do have an eventual limit on energy, all a jubilee would do is massively increase inflation as there would be a new debt binge.

    We still have enough available energy for a large increase in usage, especially coal and gas in the shorter term (decades) but will eventually run into real limits like we are with conventional oil. That point is where civilization is in real trouble. Over the last decade keeping oil production high via oil sands and shale oil have been more important than the energy cost, because of oils importance for transport.

    We were seemingly running into debt or money limits coming into 2020, but governments everywhere have printed greatly, reducing the perceptual problem of debt limits. (if they can print a trillion, why not 10, or 20? just keep interest rates at zero). It might be why markets are near record highs, as the only way to go, is up, or collapse.

    Going back decades, I’ve been following both environment and markets. Markets have always been concerned about the huge debt, with the future looking bleak because of potential debt defaults somewhere in the system. For decades all that has happened is some crisis somewhere (seemingly major to participants that include up to country level), followed by further debt and a larger ‘crisis’ somewhere else in the system a few years later, followed by more debt/money creation to get out of the problem. The GFC was ‘solved’ by printing more money to bail out those in trouble. This time is no different.

    Every time the new greater debt/money creation is seen as a huge problem, but civilization as a whole keeps advancing, I don’t think this time will be any different, because we do still have vast energy resources available for increased use, especially if we take Ugo Bardi’s Seneca cliff to be more accurate than Hubert’s bell curve for resource use and collapse. The large swing to conservative politics will probably see relaxing rules about use of coal and gas, leading to greater overall energy availability and use, including on a per capita basis.

    As the current crisis (covid and lockdowns all one in the same) wanes, governments everywhere will do whatever to increase ‘growth’ for their own political futures sake. Here in Australia they are already talking about a ‘gas led recovery’.

    Apologies for the long post..

    • Look, the finance game is merely a racket that floats on top of the natural resource extraction, technological progress and game theory which underpins all human activity.

      The graveyard of “indispensable” human affairs will be filled to the brim with various shenanigans, banksters, old money, bourgeoisie sanctimony, and all that jazz which happily floated on top of the fossil fueled wastrel rackets.

      • As a banker said to me:

        ‘Why are we paid so much? Because we are worth it? No, it’s just positioning.’

        But everyone without inner integrity tries to run a racket when they get the chance – look at unions when they become too powerful. Medical care has become a racket, elderly care, etc.

        The only question then is the relative harm done by each racket.

    • “I wonder if anyone has considered that civilization is only possible with continual growth in both debt/money and energy use”.

      Fundamentally it’s just maths really. If money is created vis debt and interest needs to be paid on that debt, where does the interest come from? Well of course more debt which thereby creates the need for debt growth forever.

      • If there is energy to be “dissipated” (burned or in the case of food, turned to human energy), then energy provides the magic growth needed to pay back debt wit interest. Once the energy stops growing sufficiently to provide the magic growth, the system tends to collapse. First, interest rates fall very low. Then the system itself starts coming “unglued.”

        • Aboriginal peoples in Australia lived successfully for thousands of years without money, debt, usury or gas. Also, colds and flu were unknown until the white invaders arrived.

          • In fact, hunter-gatherers around the world lived without financial system. Debt is needed when there needs to be an investment which does not have a return for a while. Buying land to grow food is likely one of these things. Buying seed, and hiring workers to sow the seed, is another investment needed to grow foods.

            Thus, debt was needed when hunter-gatherers became settled, and wanted to plant seeds and wait for the harvest. They needed a time-shifting device to cover the time from the planting to the harvest.

            Hunter-gatherers seem to have done mostly short time-shifting. Perhaps one person would take care of children, while the rest hunted or gathered. They were known to have customs that mandated sharing goods that were produced. People who didn’t follow the customs were thrown out of the tribe. This substituted for debt.

            • Gail, an analysis with which I have much sympathy and much agreement. Bit please allow me to offer a different perspective, which I hope is complementary rather than contradictory.

              Progress depends on the division of labour. This of course creates the need for exchange: I share with you what I hunt; you share with me what you gather. Or I hunt and feed you, and while I hunt you care for the children. Or we hunt for you, and you recite the poems of tribal lore.

              But agriculture created a need for time shifting of exchange: you help me plough the field, and after the harvest I give you a share of the crop. That was the original basis of Egyptian society: I the priest, after reading the Nilometer, tell you how much to plant, and you repay me with a proportion of the harvest. And indeed the evidence is strong that this exact proportion was set by tradition, and was inviolable.

              But exchange is binary: me and you. In a more complex economy, exchange also becomes more complex: I provide a crew for your ship; you give me some of the slaves you capture; I give those slaves to the landowner for some of his crops. Hence the need for a medium of exchange. But the system was still based on a store of value; a commodity that was widely, if not universally, recognised as one of permanent worth, and so a trustworthy enabler of time shifting. And we all know what that was.

              And then the kings discovered debt: you give me value now, and I will give you in return value that does not exist, but that can be extorted from my subjects as needed. Which brings us to the present time, where the principal occupation of the State is to tax and spend: that is, to promise value it does not possess, but that it will pay by stealing from its subjects. Perhaps this is most nakedly present in the US social security system; other polities have been better at hiding it.

              And throughout history, it is a scheme that leads to financial ruin, but usually after the architects of ruin are safely dead.

    • Hideaway, yes. I’ve commented in a few places over the last several years that I think the financial system should be viewed as a human Technology, just the way Language and Religion are human Technologies which enable a greater degree of energy throughput than would otherwise be possible. It is not a superficiality or “just maths”, but inherent to our development, I believe.

      You are right to point out that this pulling-forward of demand is a result of our ability to communicate fictional futures via our (faulty) imaginations. It would seem to me that our imaginations themselves tell us the fictions necessary to allow us to maximize our energy throughput to the extent physically possible, whether that is building airports or pyramids.

    • You have put together some other people’s ideas. You should read my posts. I agree with some of what you are saying, but not all of it. I think the issues are far deeper-rooted than you do. We are approaching the collapse part of “Overshoot and Collapse.” Or maybe (hopefully) it will look a like more like decline than collapse to us.

      I do not believe all of the “peak oil” mythology. The reason why oil, coal, and natural gas production declines is because prices fall too low. In fact, the price for uranium falls too low as well, as does the prices paid to farmers for food. Businesses close because they are unprofitable. We can’t talk about future oil, coal and gas supplies, unless we can get demand and prices up. This is tricky.

      I am afraid Australia is in for problems in the future. It badly needs trade with other countries. Trade is going away, as the world economy hits limits. Part of what reduces world trade is the response to COVID-19.

      You should read some of my posts. For example:

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

      Understanding Our Pandemic Economy Problem

    • Not a likely plan to go through.

      But the thing that we are short on is “demand.” If governments can add debt to raise demand through plans such as this, they might actually be helpful. The wages go to many people working on the project, for example. And the added demand for rocket fuel will very slightly help raise fossil fuel prices. Our big problem is fossil fuel prices that are too low.

    • Like the scamdemic, another example of the noble lie:

      “Socrates proposes and claims that if the people believed ‘this myth…[it] would have a good effect, making them more inclined to care for the state and one another.'”,as%20described%20in%20the%20Republic.

      For $28 billion they could produce the entire thing out of a Hollywood studio and few would spot the difference. Few would want to, as believing is more satisfying, and more socially acceptable, than seeing.

      “Space may be the final frontier but it’s made in a Hollywood basement.” – Californiacation by Red Hot Chili Peppers, recorded 1999, released May 20, 2000.

      The Red Hot Chili Peppers only seek to bring us the truth. 😉

      • For the record, Plato’s γενναῖον ψεῦδος does *not* mean “noble lie”. that is a modern and despicable fiction.

        • Thank you for the comment, Robert. I wasn’t aware of the contention over the translation. You sent me on an internet search and I learned something new.

          • Azure, thank you for your response. I have learned much from the participants in OFW, and am glad to have been able to repay some of that debt.

            (That, by the way, is the great virtue of a knowledge economy: knowledge cannot be given away; by its very nature it can only be shared. It is a positive sum game.)

  3. “I wonder if anyone has considered that civilization is only possible with continual growth in both debt/money and energy use.”

    That’s not true. You mean our current economy, not civilisation. If we could invent an economy that did NOT require eternal growth, an economy NOT dependent on productivism (which eventually destroys the environment), then we could have a steady state economy.

    • No, I mean civilization.
      Hunter gatherers are about the only humans that have had a long period of existence in their environments.

      Every civilization that has existed has failed and collapsed at some point, we are just not there yet.

      • Feudalism didn’t collapse. It was slowly superseded by capitalism. Remember those early steady-state despotic civilisations that Marx wrote about that lasted for thousands of years? If we take the year 1700 as a rough base mark for the start of our ‘civilisation’ because of steam power, then we won’t even manage one thousand years, the way we’re going.

        • If feudalism was such a good model it would still be around, but it isn’t, it’s gone, the model collapsed.

          Civilization seems to grow or collapse, or grow then collapse. I’m with David, I prefer growth for a few more decades.

          Human civilization could keep growing for a long time into the future by expanding into space, using the resources in space for space, a la Keith’s type of vision, or else collapse due to energy constraints sooner. We would need to re-purpose a lot of current energy use for space and a renewable energy with storage here on earth for civilization to continue more than a couple of decades at best.

          Civilizations seem to end, well after they realize there is a problem, but have never changed course early enough to avoid collapse.

          I see the most likely outcome is that we continue to waste energy by cutting each others lawns, going on holidays and swapping bits of (digital) paper with each other until we start running into hard energy limits, when it becomes too difficult to build the needed future.

          We would need about 1.2M Twh of energy to build a fully renewable future and we still have plenty of FF energy to do it, just not the understanding of the need. (The world uses about 175,000 Twh of primary energy per year now for reference on how big the task is).

          • If feudalism had collapsed. capitalism would not have been able to develop. Instead, capitalism climbed on feudalism’s shoulders and exploited the considerable surpluses that feudalism had provided in order to develop industry.

            Did the child ‘hide-away’ collapse? No. He developed into a man, just as feudalism did not ‘collapse’ but continued its growth until it allowed the next upward phase in human development.

            • feudalsim grew out of the need to exploit available energy resources, and safeguard them from predators

              In a feudal society there are only two energy resources, muscle and land

              all ‘economic systems’ were constrained by that.

              land was taken by force, and held by force. The people on that land were part of that land.

              We only truly got out of the remains of a feudal society when fossil fuels provided surplus energy to replace muscle power

      • I remain in the camp that believes IC will continue for years or even decades with decreasing net (surplus) energy, which has probably already begun though it is very difficult to measure.

        • Yep, at Surplus they try to identify firm thresholds after which per capita prosperity dwindles, perhaps able identifying the sectors and regions affected the hardest, fine. But I’d caution any early doomers, there might come events and trends prolonging the path somewhat in very unusual ways. If I read correctly Gail’s comments in recent months, she allows for the scenario of coexisting pockets of rapidly and slower falling complexity around the globe. That’s very likely the most correct model for next ~two decades.. not full uniform instadoom event.

          • It looks like feudalism will re-assert itself from the ruins of this neoliberal mess we have created. Haven’t you heard of the Fourth Industrial Revolution – ie the Digital Dictatorship?
            Let’s hope Gail is right and the lack of energy and resources will prevent this tragedy.

          • The overall trajectory will be a slow collapse IMO, but I agree there will come black swan events that disrupt regions unevenly which will have further unevenly distributed knock on effects. Now we have covid which gives depression in the west, famines in the third world. Next we may have election chaos in US or wars for whatever reason. Or an uncontained fukushima event in the west, another wave of ISIS like terrorism, climate chaos, orwellian fascism etc. We live in interesting times…

    • Malcopian, just such an economy has been invented several times, and has always been successful. It is called “feudalism”. It is static, because everybody has a stake, however small, that they do not want to lose. It has safety valves to steer the ambitious and the overachiever into harmless and productive pursuits, such as the military, the religious orders, or the universities. It is sustainable, because everyone wants to bequeath their stake, however small, to their own children.

      But it is vulnerable: to greed; to middle people who accumulate money that they then use to gain power. Which some wise men, long ago, sought to forestall by the debt jubilee.

      • ‘ Malcopian, just such an economy has been invented several times, and has always been successful. It is called “feudalism”. ‘

        And just how are you going to lead us all safely back to feudalism, Robert? Do it, and I’ll give you a silver threepence to bake into your next birthday cake.

        • Why, to be sure, I intend to do nothing, Feudalism is the natural response to civilisational collapse, so it will happen regardless of what I do, or what anyone else does. Ducunt fata volentem, nolentem trahunt. (The epigraph, by the way, to Spengler’s “Der Untergang des Abendlandes”)

          • I am reading an interesting memoir by a man who fought twice in the Russian army in Chechnya in the 1990s. Horrific of course. They had open slave markets in central Grozny.

            That was one thing that discouraged the Russians soldiers from deserting. No one wanted to be captured and enslaved (even worse than by the army)

    • Growth in energy also means growth in waste. I would not want to go too deep into this topic (now) but we have a huge problem with agents accuumulating in our environment that in the loing term will destroy our reproductive abilities. The question is do we have too much of these agents already? We can not know this because it eats through the human cells at very low speed. We do in fact already see vastly increased health problems in children and fertility problems in males and females. We have substantial biodiversity loss.
      Ten years ago I had about 100 moths in my living room in the evening with open windows and a light bulb on. Today, I have about 5. Well fish , birds, plants what have you.
      If you believe in natural emergence, Covid19 is just another marker of overuse of your environment
      It is not sure if humans can survive without nature…

      • Yes, the lack of insects in NY state is disturbing me. In Czechia there are no insects and no squirrels and no chipmunks, massive falls of acorns with no consumers.



    “American Airlines has agreed to a massive loan with the U.S. Treasury Department, which was authorized under the CARES Act. The company announced it had secured the deal on Friday, which will allow the airline to utilize almost $5.5 billion in relief funds.

    That number is an increase from the original agreement of $4.7 billion. As part of the agreement, the company will be able to use $550 million immediately and may increase the total loan amount to upwards of $7.5 billion.

    American Airlines’ CEO recently weighed in on the importance of the loan and highlighted the airline industry’s critical role in the economy’s rebound from coronavirus shutdowns.

    “In the case of the airlines, we do provide some critical infrastructure to a recovery, to making sure as the economy rebounds, airlines are here flying to help the economy rebound,” stated Doug Parker.

    In the meantime, the airline is hoping to use the funds to keep employees from being furloughed and continue training pilots for future flights. According to the Treasury Department, American Airlines owes a total of $42 billion in debts following the deal’s approval.”

    only $42 billion in debt.

    • If the loan helps pay people’s salaries, it helps keep the economy from crashing for a little longer. The chance of repayment is likely slim to none, but the government seems to make many such loans.

  5. Gail, would you please comment, either here or in a separate posting, on the notion and likelihood of a debt Jubilee, either for all debts or graduated by size of debt and creditor? The debt-extinguishing of, say, QE makes this matter complex and difficult to predict. Thank you…

    • My guess regarding what will happen at some point in the future (after there are too many problems with our current system):

      (1) Countries will announce new internal currencies, to be used only for transactions within the country. People with jobs will be paid in this currency. Pensions (if any) will be paid in this currency as well.

      (2) Existing bank accounts and values of shares of stock, will mostly “go away.” Governments may decide to take over ownership of property of all kinds. This will basically represent a default on existing debt.

      (3) There may be a separate currency for international trading. But there will be much less international trading.

      So I see a sort of debt jubilee occurring. But, it will, at the same time, wipe out all of the good things we associate with debt, such as bank account balances and pension payments. The financial system will essentially crash, and be replaced with a new local currencies. The new local currencies will likely allow much less debt.

      • Whether their reputation is deserved, I don’t know, but the old proverb -I think Italian:

        Trust a Greek before a Jew, a Jew before a Turk, but never, ever trust an Armenian.’

        Curiously, the Greek prisoners in the German concentration camps had the reputation of never murdering anyone(and the Communists of never helping anyone who wasn’t one of their gang – so much for love of mankind.)

        Anyway, another war and more innocents suffering.

        • As an Armenophile (I’ve been learning the language), I am horrified, but am reminded of the remark in Gurdjieff’s “Meetings with Remarkable Men” to the effect of, “Boil ten Armenians and you get a Jew. Boil ten Jews and you get an Assyrian.” (The remark was a humorous introduction to an Assyrian character. Gurdjieff was born in Gyumri and raised in Kars.)

            • I misremembered the formula! Here’s the real quote (from ch. 6, “Abraham Yelov”–this being the name of G.’s Assyrian friend):

              “In Transcaucasia there even exists the following definition of them [the Assyrians or “Aisors”]: ‘Boil together seven Russians, you get one J.ew; boil seven J.ews, you get one Armenian; but only by boiling seven Armenians can you get one Aisor.’ “

  6. “China’s official figures say that industrial production has bounced back strongly and the construction industry is positively booming.

    “But behind the big headline forecasting a swift global recovery, there lurks a very different reality which Chinese households and local governments are experiencing.

    “In the northeastern province of Heilongjiang, local government officials have been told to go on a cost-cutting spree in order to free up funds to direct towards the economic recovery or to fight the coronavirus pandemic.

    “Under the 90-point directive, government employees were instructed to cut spending on pens, paper, scissors and glue. They were also told they should not expect a bonus or pay rise and that colour printing was to be avoided.”

      • Well, Boris perhaps could send there three specimen of electric Jaguar to warm up local potentates, while China might dispatch a boat load of carz, mopeds and other trinkets.. And that’s in short why the long game is already lost, trololol..

      • “Barbados is the 53rd richest country in the world in terms of GDP, has a well-developed mixed economy, and a moderately high standard of living. Despite this, a 2012 self-study in conjunction with the Caribbean Development Bank revealed 20% of Barbadians live in poverty, and nearly 10% cannot meet their basic daily food needs.”

        Here in the UK, Barbadians and those of Barbadian descent are way less likely to get into trouble with the law than those from Jamaica, Belize, Trinidad and Guyana.

      • Then again, the Queen is reaching the end of her life and reign. Would Barbados really want that eccentric Prince Charles as its next head of state? And the monarchy is looking tarnished these days: Harry, Andrew.

        Beyond that, the British Empire – that originally bound Barbados to Britain – is long gone. Nothing lasts forever.

    • The Northeast part of China is the old industrial area, perhaps like Detroit in the US. It was suffering a slowdown when I visited there in the spring of 2015.

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