Lunch Price Increase

Honest growth driven by low cost energy is over.

What’s left is fake growth driven by debt and money printing.

I think the illusion of growth created by debt and money printing will eventually end when something awakens the herd to the bubbles and causes it to sell assets in a panic which will harm a lot of people, including innocents without assets.

On the other hand, if I am wrong and central banks continue to succeed with their illusion, then it seems the end game will be 90+% of assets owned by the 1% elite, and 99% of citizens angry and impoverished by a destroyed currency.

It would be so much wiser and safer to accept the necessity of a decline in our standard of living, and to allow the economy to deflate with taxation policies designed to prevent the wealth gap from widening as everyone becomes poorer.

I understand that it may be impossible to orchestrate a gradual deflation without triggering a crash, however every day that we postpone reality increases the pain we will eventually experience.

There is no free lunch.

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By Vaclav Smil: Energy Revolution? More like a Crawl

Vaclav Smil is an intelligent, wise, and knowledgeable expert on a wide range of scientific and social topics related to energy. He is Distinguished Professor Emeritus at the University of Manitoba in Winnipeg, Canada, and is a respected author of many books.

In this September 2015 talk at McGill University he touches on many important topics including:

  • We are a fossil fuel civilization and will remain so for a long time.
  • Over the last 25 years we have reduced our dependence on fossil energy by only 3%.
  • Power density is critical when comparing energy alternatives.
  • Renewable energy is not renewable and does not have the density to replace fossil energy.
  • Green products are not green.
  • Nuclear energy is dead. What’s left is being developed in the wrong places.
  • CO2 capture is not a solution for climate change.
  • Developed countries do not use energy rationally. Canada (and the U.S.) are the worst offenders in the world.
  • Food and energy have never been cheaper and we should expect to pay a lot more in the future.
  • The solution to reducing waste and energy consumption is higher prices.
  • Innovation is an overvalued and exaggerated topic. All of the critical technologies civilization depends on were invented over 100 years ago.
  • There are more important issues to worry about than peak oil including water scarcity, money printing, low interest rates, and high youth unemployment.
  • Most big events in history were unexpected. We can expect surprises in the future.
  • Reasons for hope include the peaceful breakup of the Soviet Union, and the fact that we can have comfortable lives at a much lower level of consumption.

I agree with almost all of Smil’s points except:

  • Smil believes we are unable to accurately predict the effect of rising CO2 and therefore he is not worried about climate change. I’ve done enough reading of climate science to be confident we should be very worried.  While we are not able to precisely predict the outcome, the probable outcome of our current path ranges from dangerous to catastrophic.
  • Smil believes that with fracking and other technology improvements we will have plentiful oil for at least a hundred years. I think we will have energy shortages within 10 years. Our different views are probably rooted in different assumptions about the link between energy and the economy. Smil thinks any oil shortages will increase the price of oil thus enabling new and more expensive sources. I think rising oil prices will reduce worker productivity and incomes which will make more expensive oil unaffordable and therefore supply will reduce in an escalating feedback loop as inexpensive oil is depleted. I also think that oil depletion and consequent rising production costs are the main cause of rising debt, money printing, and low interest rates that Smil worries about.

This lecture is a must watch for people seeking to understand the issues that really matter to our experiment with civilization.

By Tim Morgan: Why Mr. Trump can’t raise American prosperity

A must read by the brilliant Tim Morgan.

https://surplusenergyeconomics.wordpress.com/2017/09/05/104-why-mr-trump-cant-raise-american-prosperity/

Essentially, two things are happening to the average American. First, his or her income is rising less rapidly than the cost of essentials, squeezing the “discretionary” income which is the real definition of prosperity. Second, increases in income are being far exceeded by increases in debt, and also by growing shortfalls in pension provision. So the citizen feels both less prosperous and less secure.

As SEEDS measures it, per capita prosperity was 10% lower in 2016 than it was back in 2000. Neither is this trend likely to reverse – by 2025, the average American is likely to have seen his or her prosperity decline by a further 8% in comparison with 2016. At the same time, per capita debt has increased by almost $54,000, in real terms, since 2000, a problem now being compounded by a rapidly-growing systemic shortfall in pension provision.

‘Conventional’ economics cannot capture any of this. A perspective which ignores both “borrowed consumption” and the trend cost of energy is baffled by popular discontent, in America and elsewhere. Moreover, ‘conventional’ analysis tends to be misled by the apparently-buoyant values of stocks, bonds and property. These values are misleading, because they cannot be monetized – the only buyers for homes, for example, are the same people to whom they already belong.

For as long as these issues are overlooked, popular anger is likely to go on taking ‘the experts’ by surprise.

 

The concept of prosperity needs to be understood clearly. Prosperity is not simply the size of someone’s income. Rather, it is the sum left over after essentials have been paid for. This means that prosperity equates to “discretionary” income, which is the sum that he or she can choose how to spend.

The fundamentally energy-based nature of all output creates a natural distinction between “two economies” – the real economy of goods and services, and the financial economy of money and credit. Used properly, the financial system can deliver many benefits. Equally, though, it can be harmful, if it diverges too far from the real economy.

The potential for harm is simple. Money functions only as a “claim” on goods and services, which really makes it a claim on surplus energy. Likewise, since credit is a claim on future money, it is really a claim on future energy.

Financial “claims” – money and credit – can be manufactured out of thin air, and we can create as many of these claims as we like. But, if we create claims that exceed what the real economy can deliver, the excess cannot be honoured. Therefore, it must be destroyed. Inflation is one way of doing this, though default is another.

 

America is by no means unique in experiencing downwards pressure on prosperity – the same is happening in many other countries, often more severely than in the United States.

The problems posed for America are twofold. First, the deterioration in prosperity makes it impossible for the President to improve the material prosperity of the average American – in attempting to do so, he is about as powerless as was King Canute when he tried to turn back the tide.

Second, the use of cheap money to ‘manufacture’ nominal economic growth is already creating an escalating level of forward risk. Just as Americans are getting less prosperous, they are also becoming ever more indebted, and face ever greater insecurity as provision for pensions deteriorates.

The time cannot be too far off, for America as for the world more generally, where the future (represented by the collective balance sheet) overwhelms the present.

video review: Crude: The Incredible Journey of Oil by Richard Smith

crude-the-incredible-journey-of-oil

I’ve watched a lot of good documentaries but this one produced in 2007 by Richard Smith for the Australian Broadcasting Corporation is among the very best.

http://www.abc.net.au/science/crude/resources/

http://www.imdb.com/title/tt1551617/

Usually, the more important a non-fiction work is, the more scientific disciplines the author integrates into a coherent story. In this case, Richard Smith does a remarkable job of weaving geology, chemistry, biology, thermodynamics, climate, history, and economics into a fascinating story that follows a carbon atom as it moves about the planet over the last 200 million years.

I often marvel at, and wonder how we were blessed with such a large quantity of crude oil which we have used to build an amazing civilization. This documentary does a very nice job of explaining how crude oil was formed 160 million years ago on a hot greenhouse planet with near dead and toxic oceans. The photosynthetic bacteria that converted CO2 and sunlight into the carbohydrates that later became crude oil acted to remove CO2 from the atmosphere thus cooling the planet and returning it to a healthy environment for complex oxygen breathing life like ourselves.

Humans are now reversing this process by burning fossil carbon and returning the CO2 to the atmosphere which may return the planet to an environment incompatible with civilization. Unless, ironically, we run out of oil first, which will also cause our civilization to collapse.

What’s different this time is that humans are doing in a hundred years what took geology thousands or millions of years in the past. This speed makes the outcome more difficult to predict but common sense suggests it’s unlikely to be good.

Given that 10 years have elapsed since the documentary was produced it’s a credit to Richard Smith that it’s still relevant and accurate, although it’s a concern to see how far we have unraveled in 10 years with melting poles, record temperatures, stalled economic growth, zero interest rates, money printing, failing oil companies, and global social unrest.

It’s also a concern, but expected in light of Varki’s theory on denial, that we collectively have not yet acknowledged our predicament, let alone taken any steps to make the future less bad.

Highly recommended!

If you’d like a higher quality version than what’s available on YouTube it has been recently ripped in HD and available as a torrent here.

 

 

By Alice Friedemann: German Military Study on Peak Oil

German Military - Peak Oil Study - 2010

Alice Friedemann summarizes here a 2010 study on peak oil conducted by the German military.

http://energyskeptic.com/2017/german-military-peak-oil-summary/

The original full report can be found here.

And what was the German government’s response to this excellent report on peak oil by their own military?

They increased their population with immigration.

Denial is amazing!

 

Today approximately 90% of all industrially manufactured products depend on the availability of oil. Oil is not only the source material for producing fuels and lubricants but is also used as hydrocarbon for most plastic. It is one of the most important raw materials in the production of many different products such as pharmaceuticals, dyes and textiles. As the source material for various types of fuels, oil is a basic prerequisite for the transportation of large quantities of goods over long distances. Alongside information technology, container ships, trucks and aircraft form the backbone of globalization. Oil-based mobility also significantly influences our lifestyle, both regionally and locally. For example, living in suburbs several miles from their workplace would be impossible for many people without a car.

 

Societal risks of peak oil

  1. Economic collapse
  2. Transportation restricted
  3. Erosion of confidence in state institutions

There are not sufficient alternatives to oil for transportation, so when oil grows short, there are likely to be extreme restrictions for private vehicles, especially in suburbs, resulting in a “mobility crisis” that would make the economic crisis much worse.

Scarce or expensive oil would drive up the cost of all goods. Our current international movement of goods has largely been made possible by the technological progress in the field of freight traffic (container ships, trucks, cooling systems), which are based on fossil fuels.  So trying to switch all modes of transport to alternative energy sources is much more complex with today’s common means of transportation and technology. Mobility on the basis of fossil fuels is likely to remain a long time.   Oil shortages could lead to bottlenecks in delivering food and other life-sustaining essential goods.

After peak oil, there would be significant differences from past food shortages:

  • The crisis would concern all food traded over long distances, not just single regions or products. Regions that are structurally already at risk today would however be particularly affected (see figure 6).
  • Crop yields also depend on oil. Lack of machines or oil-based fertilizers and other chemicals to increase crop yield would therefore have a negative effect on crop production
  • The increase in food prices would be long-term
  • Competition between the use of farmland for food production and for producing biofuels could worsen food shortages and crises.

 

After oil shortages people will experience a lowering of living standards due to an increase in unemployment and the cost of oil for their vehicles. Studies reveal that only continuous improvement of individual living conditions provide the basis for tolerant and open societies. Setbacks in economic growth can lead to an increase in the number of votes for extremist and nationalistic parties.

 

Other likely consequences

Banks left with no commercial basis. Banks would not be able to pay interest on deposits as they would not be able to find creditworthy companies, institutions or individuals. As a result, they would lose the basis for their business.

Loss of confidence in currencies. Belief in the value-preserving function of money would dwindle. This would initially result in hyperinflation and black markets, followed by a barter economy at the local level.

Collapse of value chains. The division of labor and its processes are based on the possibility of trade in intermediate products. It would be extremely difficult to conclude the necessary transactions lacking a monetary system.

Collapse of unpegged currency systems. If currencies lose their value in their country of origin, they can no longer be exchanged for foreign currencies. International value-added chains would collapse as well.

Mass unemployment. Modern societies are organized on a division-of-labor basis and have become increasingly differentiated in the course of their histories. Many professions are solely concerned with managing this high level of complexity and no longer have anything to do with the immediate production of consumer goods. The reduction in the complexity of economies that is implied here would result in a dramatic increase in unemployment in all modern societies.

National bankruptcies. In the situation described, state revenues would evaporate. (New) debt options would be very limited, and the next step would be national bankruptcies.

Collapse of critical infrastructures. Neither material nor financial resources would suffice to maintain existing infrastructures. Infrastructure interdependencies, both internal and external with regard to other subsystems, would worsen the situation.

Famines. Ultimately, production and distribution of food in sufficient quantities would become challenging.

War.  Oil shortages are likely to be seen by importing nations as a national security issue leading to conflict, which could also emerge over renewable energy resources.

By Chris Martenson: Signs of Distress

https://www.peakprosperity.com/blog/110096/signs-distress

What if there’s nothing wrong with the people who are anxious or depressed, but the exact opposite is true; those who are cheerful and chipper are missing the plot?

 

The world is edging closer to the final moments after which everything will be forever changed. Grand delusions, perpetuated over decades, will finally hit the limits of reality and collapse in on themselves.

We’re over-budget and have eaten deeply into the principal balances of all of our main trust accounts. We are ecologically overdrawn, financially insolvent, monetarily out past the Twilight Zone, consuming fossil fuels (as in literally eating them), and adding 80,000,000 net souls to the planet’s surface — each year! — without regard to the consequences.

Someday there will be hell to pay financially, economically, and ecologically as there simply isn’t any way to maintain these overdrafts forever. Reality does not renegotiate. Its deal terms aren’t compromisable.

For those who have the neural plasticity to actually see what’s happening around us, the changes are already here, blatant and frightening. Younger folks, with their fresher eyes and fewer ties to the past, can see them a lot easier than their elders.

The prosperity enjoyed by the past few generations — especially the Baby Boomers — was stolen from future generations. All the while, they pretended as if their borrowing-heavy standards of living were the result of sheer genius and intelligence; like trust fund babies who mistake being born on third base for hitting a triple.

Young people have sussed this out; and are now pulling back from many of the principal occupations of their forebears — like marriage, babies and buying homes and cars. This perplexes older folks, who are beginning to find themselves increasingly at odds with the generations following after them.

Humans can be very very smart, but the flip-side of our ingenuity is our capacity for self-delusion. We’ve very consistently preferred to look past our faults. That can work for a while, but eventually an incomplete view will lead to a complete disaster. For example: depleting our topsoils today to grow more eventually leads to a collapse of our food system tomorrow. Similarly, increasing societal complexity ultimately drains the resources out of an empire, until it withers and fails. Such is what we can learn from history. Each of these examples is rooted in the self-delusion that today’s actions don’t have real consequences.

Monetary printing experiments like those currently being run by the world’s central banks are the ultimate form of self-delusion. Money is the most potent form of social communication, underlying all contracts and agreements. Violate those and literally everything falls apart, as we are seeing happen in real-time in Venezuela right now.

Money printing and its other historical debasement equivalents, serve to cover up (barely) critical signals. Derelict ideas that should die a quick death, instead, persist. Mis-priced money leads mal-investment (e.g., Italian junk debt selling with the same yield as ten year US Treasury debt!!). Extremely unfair redistributions of wealth from the bottom to the top result. Every. Single. Time. This time is no different.

By Kurt Andersen: How America Lost Its Mind (On the History of Denial)

This is an interesting (and lengthy) article on the recent history of denial of reality.

In summary, we’ve always denied reality, but lately it’s getting much worse.

I observe that the author does not understand the genetic basis of denial and therefore is like a fish explaining the history of swimming without being aware of water.

And, of course, after pages of facts showing the trend and likely outcomes are very bad, the author supports Varki’s theory by ending on an optimistic note that everything will work out ok in the end.

https://www.theatlantic.com/magazine/archive/2017/09/how-america-lost-its-mind/534231/

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Each of us is on a spectrum somewhere between the poles of rational and irrational. We all have hunches we can’t prove and superstitions that make no sense. Some of my best friends are very religious, and others believe in dubious conspiracy theories. What’s problematic is going overboard—letting the subjective entirely override the objective; thinking and acting as if opinions and feelings are just as true as facts. The American experiment, the original embodiment of the great Enlightenment idea of intellectual freedom, whereby every individual is welcome to believe anything she wishes, has metastasized out of control. From the start, our ultra-individualism was attached to epic dreams, sometimes epic fantasies—every American one of God’s chosen people building a custom-made utopia, all of us free to reinvent ourselves by imagination and will. In America nowadays, those more exciting parts of the Enlightenment idea have swamped the sober, rational, empirical parts. Little by little for centuries, then more and more and faster and faster during the past half century, we Americans have given ourselves over to all kinds of magical thinking, anything-goes relativism, and belief in fanciful explanation—small and large fantasies that console or thrill or terrify us. And most of us haven’t realized how far-reaching our strange new normal has become.

 

Much more than the other billion or so people in the developed world, we Americans believe—really believe—in the supernatural and the miraculous, in Satan on Earth, in reports of recent trips to and from heaven, and in a story of life’s instantaneous creation several thousand years ago.

We believe that the government and its co-conspirators are hiding all sorts of monstrous and shocking truths from us, concerning assassinations, extraterrestrials, the genesis of aids, the 9/11 attacks, the dangers of vaccines, and so much more.

And this was all true before we became familiar with the terms post-factual and post-truth, before we elected a president with an astoundingly open mind about conspiracy theories, what’s true and what’s false, the nature of reality.

We have passed through the looking glass and down the rabbit hole. America has mutated into Fantasyland.

 

How widespread is this promiscuous devotion to the untrue? How many Americans now inhabit alternate realities? Any given survey of beliefs is only a sketch of what people in general really think. But reams of survey research from the past 20 years reveal a rough, useful census of American credulity and delusion. By my reckoning, the solidly reality-based are a minority, maybe a third of us but almost certainly fewer than half. Only a third of us, for instance, don’t believe that the tale of creation in Genesis is the word of God. Only a third strongly disbelieve in telepathy and ghosts. Two-thirds of Americans believe that “angels and demons are active in the world.” More than half say they’re absolutely certain heaven exists, and just as many are sure of the existence of a personal God—not a vague force or universal spirit or higher power, but some guy. A third of us believe not only that global warming is no big deal but that it’s a hoax perpetrated by scientists, the government, and journalists. A third believe that our earliest ancestors were humans just like us; that the government has, in league with the pharmaceutical industry, hidden evidence of natural cancer cures; that extraterrestrials have visited or are visiting Earth. Almost a quarter believe that vaccines cause autism, and that Donald Trump won the popular vote in 2016. A quarter believe that our previous president maybe or definitely was (or is?) the anti-Christ. According to a survey by Public Policy Polling, 15 percent believe that the “media or the government adds secret mind-controlling technology to television broadcast signals,” and another 15 percent think that’s possible. A quarter of Americans believe in witches. Remarkably, the same fraction, or maybe less, believes that the Bible consists mainly of legends and fables—the same proportion that believes U.S. officials were complicit in the 9/11 attacks.

 

People see our shocking Trump moment—this post-truth, “alternative facts” moment—as some inexplicable and crazy new American phenomenon. But what’s happening is just the ultimate extrapolation and expression of mind-sets that have made America exceptional for its entire history.

 

The Christian takeover happened gradually, but then quickly in the end, like a phase change from liquid to gas. In 2008, three-quarters of the major GOP presidential candidates said they believed in evolution, but in 2012 it was down to a third, and then in 2016, just one did. That one, Jeb Bush, was careful to say that evolutionary biology was only his truth, that “it does not need to be in the curriculum” of public schools, and that if it is, it could be accompanied by creationist teaching. A two-to-one majority of Republicans say they “support establishing Christianity as the national religion,” according to Public Policy Polling.

 

Trump doesn’t like experts, because they interfere with his right as an American to believe or pretend that fictions are facts.

 

Not all lies are fantasies and not all fantasies are lies; people who believe untrue things can pass lie-detector tests. For instance, Trump probably really believed that “the murder rate in our country is the highest it’s been in 47 years,” the total falsehood he told leaders of the National Sheriffs’ Association at the White House in early February. The fact-checking website PolitiFact looked at more than 400 of his statements as a candidate and as president and found that almost 50 percent were false and another 20 percent were mostly false.