Gail Tverberg is one of my favorite thinkers and has been writing about our overshoot predicament for years. In today’s essay she makes the most specific predictions I’ve seen on the probable outcomes of the economic deceleration caused by the Wuhan virus.
I suspect most of her predictions will happen, but I’m not confident on the timeline. It’s possible money printing will buy us a few more years, or maybe not.
I think we should hope for the best, and plan for the worst.
Regardless, time is running out to make preparations.
Here are a few excerpts from her full essay.
COVID-19 and oil at $1: Is there a way forward?
Our basic problem is a finite world problem. World population has outgrown its resource base.
In this post, I suggest the possibility that some core parts of the world economy might temporarily be saved if they can be made to operate fairly independently of each other.
The COVID-19 actions taken to date, together with the poor condition the economy was in previously, lead me to believe that the world economy is headed for a major reset.
A reset world economy will likely end up with “pieces” of today’s economy surviving, but within a very different framework.
There are clearly parts of the world economy that are not working:
- The financial system is way too large. There is too much debt, and asset prices are inflated based on very low interest rates.
- World population is way too high, relative to resources.
- Wage and wealth disparity is too great.
- Too much of income is going to the financial system, healthcare, education, entertainment, and travel.
- All of the connectivity of today’s world is leading to epidemics of many kinds traveling around the world.
Even with these problems, there may still be some core parts of the world economy that perhaps can be made to work. Each would have a smaller population than today. They would function much more independently than today, like mostly separate economic pumps. The nature of these economies will be different in different parts of the world.
In a less connected world, what we think of today as assets will likely have much less value. High rise buildings will be worth next to nothing, for example, because of their ability to transfer pathogens around. Public transportation will lose value for the same reason. Manufacturing that depends upon supply lines around the world will no longer work either. This means that manufacturing of computers, phones and today’s cars will likely no longer be possible. Products built locally will need to depend almost exclusively on local resources.
Pretty much everything that is debt today can be expected to default. Shares of stock will have little value. To try to save parts of the system, governments will need to take over assets that seem to have value such as farm land, mines, oil and gas wells, and electricity transmission lines. They will also likely need to take over banks, insurance companies and pension plans.
If oil products are available, governments may also need to make certain that farms, trucking companies and other essential users are able to get the fuel they need so that people can be fed. Water and sanitation are other systems that may need assistance so that they can continue to operate.
I expect that eventually, each separate economy will have its own currency. In nearly all cases, the currency will not be the same as today’s currency. The currency will be paid only to current workers in the economy, and it will only be usable for purchasing a limited range of goods made by the local economy.
These are a few of my ideas regarding what might be ahead:
(a) There will be a shake-out of governmental organizations and intergovernmental organizations. Most intergovernmental organizations, such as the United Nations and European Union, will disappear. Many governments of countries may disappear, as well. Some may be overthrown. Others may collapse, in a manner similar to the collapse of the central government of the Soviet Union in 1991. Governmental organizations take energy; if energy is scarce, they are dispensable.
(b) Some countries seem to have a sufficient range of resources that at least the core portion of them may be able to go forward, for a while, in a fairly modern state:
- United States
Big cities will likely become problematic in each of these locations, and populations will fall. Alaska and other very cold places may not be able to continue as part of the core, either.
(c) Countries, or even smaller units, will want to continue to limit trade and travel to other areas, for fear of contracting illnesses.
(d) Europe, especially, looks ripe for a big step back. Its fossil fuel resources tend to be depleted. There may be parts that can continue with the use of animal labor, if such animal labor can be found. Big protests and failing debt are likely by this summer in some areas, including Italy.
(e) Governments of the Middle Eastern countries and of Venezuela cannot continue long with very low oil prices. These countries are likely to see their governments overthrown, with a concurrent reduction in exports. Population will also fall, perhaps to the level before oil exploration.
(f) The making of physical goods will experience a major setback, starting immediately. Many supply chains are already broken. Medicines made in India and China are likely to start disappearing. Automobile manufacturing will depend on individual countries setting up their own manufacturing supply chains if the making of automobiles is to continue.
(g) The medical system will suffer a major setback from COVID-19 because no one will want to come to see their regular physician any more, for fear of catching the disease. Education will likely become primarily the responsibility of families, with television or the internet perhaps providing some support. Universities will wither away. Music may continue, but drama (on television or elsewhere) will tend to disappear. Restaurants will never regain their popularity.
(h) It is possible that Quantitative Easing by many countries can temporarily prop up the prices of shares of stock and homes for several months, but eventually physical shortages of many goods can be expected. Food in particular is likely to be in short supply by spring a year from now. India and Africa may start seeing starvation much sooner, perhaps within weeks.
(i) History shows that when energy resources are not growing rapidly (see discussion of Figure 3), there tend to be wars and other conflicts. We should not be surprised if this happens again.
We seem to be reaching the limit of making our current global economic system work any longer. The only hope of partial salvation would seem to be if core parts of the world economy can be made to work in a more separate fashion for at least a few more years. In fact, oil and other fossil fuel production may continue, but for each country’s own use, with very limited trade.
There are likely to be big differences among economies around the world. For example, hunter-gathering may work for a few people, with the right skills, in some parts of the world. At the same time, more modern economies may exist elsewhere.
The new economy will have far fewer people and far less complexity. Each country can be expected to have its own currency, but this currency will likely be used only on a limited range of locally produced goods. Speculation in asset prices will no longer be a source of wealth.
It will be a very different world!