Author: Rob Mielcarski

By Tim Watkins: The Three Vortices of Doom (energy, debt, state)

The Net Energy Cliff

 

Tim Watkins today published a superb big picture essay explaining the troubling trends in our economy that everyone sees but few understand.

It’s a great primer for anyone curious why the stories they hear from their leaders and news media don’t make sense.

If you’re the kind of person that needs hope, Watkins advises to pray for a very large discovery of low-cost oil or a breakthrough in nuclear energy.

Or, if you’re the kind of person that likes to know the most probable outcome they should prepare for, Watkins advises to get used to living with less in a more local economy.

http://consciousnessofsheep.co.uk/2018/09/13/the-three-vortices-of-doom/

Despite the cheerleading efforts of the legacy media, the economic storm clouds are growing on the horizon.  Oil – the economic “master resource” – passed $80 per barrel yesterday.  Meanwhile, central banks around the world have begun to unwind the stimulus packages used to bail out the economy in the aftermath of the 2008 crash.  And all the while, governments are struggling to balance the need to manage their borrowing while maintaining the value of their currencies.  Add to that the politics of the new nationalism and you have a recipe for turbulent economic times in the very near future.

By far the biggest blind spot in economics, however, is its treatment of energy as just another cheap resource to be exploited.  In fact, energy should be treated as a separate category alongside capital, labour and resources in any model that seeks to explain the way the real world works.  This is because energy is the transformative force that allows us to (temporarily) defy the second law of thermodynamics, which says that things move from order to chaos; they break down not up.  As Steve Keen puts it:

“Capital without energy is a statue; labour without energy is a corpse.”

Another way of understanding this is to see that for a mere $80 dollars we get more than $350,000 worth of work (if we had to pay a human the average wage to do it).  This also explains why relatively small changes in the price of energy (particularly oil because its use is ubiquitous) have such a dramatic impact on the monetary economy.  Just three years ago, for every $40 spent on oil, companies were returning $350,000 worth of productive work.  Today, the same $40 is returning just $175,000 of productive work; something that largely explains the so-called “productivity puzzle,” as well accounting for why ten of last eleven recessions were preceded by a spike in the price of oil.

Without the net energy to allow for genuine economic growth, sovereign debt becomes as unpayable as consumer and corporate debt.  It can be defaulted or it can be inflated away; but it can never be repaid in real terms.  States, however, are unlikely to concede this point until it is too late. To put it another way, states will use all of the power at their disposal to maintain the exchange rate of their currencies even if this results in economic ruin for their national economies and their citizens.

These, then are the three vortices which (in the absence of some new high-EROEI energy source) are gradually choking the life out of our global industrial civilisation.  As the net energy remaining to us declines, an ever greater proportion of our currency and useable energy will be sucked into them until such time as our economy consists of nothing else but the growing of food and the generation of energy in the service of an ever more capricious state.  This process will inevitably involve the acceleration of the decline in living standards that those at the bottom of the income ladder have been experiencing since the 1970s.  It will also result in a re-localising of economies as the energy required to maintain global supply chains disappears.  In this respect, the conservative nationalism of Brexit and Trump may simply be the relatively benign early manifestation of the politics of our energy-starved future.

By Tom Murphy: The Energy Trap (we all scream for ice cream)

The Energy Trap

A friend reminded me of this 2011 essay written by the brilliant physicist Tom Murphy.

I read it when Murphy first published it but I had forgotten how good it was so I’ve dusted it off in the hope that it sees more daylight.

https://dothemath.ucsd.edu/2011/10/the-energy-trap/

Many Do the Math posts have touched on the inevitable cessation of growth and on the challenge we will face in developing a replacement energy infrastructure once our fossil fuel inheritance is spent. The focus has been on long-term physical constraints, and not on the messy details of our response in the short-term. But our reaction to a diminishing flow of fossil fuel energy in the short-term will determine whether we transition to a sustainable but technological existence or allow ourselves to collapse. One stumbling block in particular has me worried. I call it The Energy Trap.

In brief, the idea is that once we enter a decline phase in fossil fuel availability—first in petroleum—our growth-based economic system will struggle to cope with a contraction of its very lifeblood. Fuel prices will skyrocket, some individuals and exporting nations will react by hoarding, and energy scarcity will quickly become the new norm. The invisible hand of the market will slap us silly demanding a new energy infrastructure based on non-fossil solutions. But here’s the rub. The construction of that shiny new infrastructure requires not just money, but…energy. And that’s the very commodity in short supply. Will we really be willing to sacrifice additional energy in the short term—effectively steepening the decline—for a long-term energy plan? It’s a trap!

 

In the parallel world of economics, an energy decline likely spells deep recession. The substantial financial investment needed to carry out an energy replacement crash program will be hard to scrape together in tough times, especially given that we are unlikely to converge on the “right” solution into which we sink our bucks.

Politically, the Energy Trap is a killer. In my lifetime, I have not witnessed in our political system the adult behavior that would be needed to buckle down for a long-term goal involving short-term sacrifice.  Or at least any brief bouts of such maturity have not been politically rewarded.  I’m not blaming the politicians. We all scream for ice cream. Politicians simply cater to our demands. We tend to vote for the candidate who promises a bigger, better tomorrow—even if such a path is untenable.

The only way out of the political trap is for a substantial fraction of our population to understand the dimensions of the problem: to understand that we’ve been spoiled by the surplus energy available through fossil fuels, and that we will have to make decade-level sacrifices to put ourselves on a new track. The only way to accomplish this is through sober education, which is what Do the Math is all about. It’s a trap! Spread the word!

 

Tom Murphy stopped writing in 2013 after (I think) he realized that no amount of education will change the behavior of the majority.

By Tim Garrett: The Global Economy, Heat Engines, and Economic Collapse

BP Energy Consumption

Thanks to Apneaman for bringing my attention to a new blog by Tim Garrett.

Garrett is the most important and least recognized physicist in the world, having explained and quantified the relationship between energy consumption and economic wealth. You can find other work by Garrett that I’ve posted here.

This most recent essay provides a nice overview of Garrett’s theory and its implications.

http://nephologue.blogspot.com/2018/08/the-global-economy-heat-engines-and.html

Because the Gross World Product (GWP) exists, we grow, and then use our growth to access more energy which we can then consume with the higher infrastructure demands. The relevant equation is that every 1000 dollars of year 2005 inflation-adjusted gross world product requires 7.1 additional Watts of power capacity to be added, independent of the year that is considered.

Right now, energy consumption is continuing to grow rapidly, sustaining an ever larger GWP. But it is not the rate of energy consumption that supports the GWP, but the rate of growth of energy consumption that supports the GWP.

This important distinction is flat out frightening. The implication is that if we cease to grow energy and raw material consumption globally, then the global economy must collapse. But if don’t cease to grow energy consumption and raw material consumption then we still collapse due to climate change and environmental destruction.  Is there no way out?

On Famous Polymaths

See No Evil

There are two and only two topics required to understand the basis of every success and problem in our civilization: thermodynamics and genetic behavior.

By thermodynamics I mean:

  • the laws of thermodynamics that govern our universe
  • the relationships between energy, economy, wealth, population, and pollution
  • the relationship between debt and surplus energy
  • the history of energy use
  • the types, sources, qualities, density, scalability, and applications of energy
  • the discovery rate, consumption rate, and reserves of non-renewable energy
  • what is and is not feasible with, and the dependencies of, non-fossil energy

By genetic behavior I mean:

  • the maximum power principle of biology
  • human behaviors that are mostly hard-wired
  • genetic behaviors that contributed to our unique success and predicament
  • why those genetic behaviors evolved

Why is it that every famous intellectual understands many topics except the only two topics that really matter: thermodynamics and genetic behavior?

  • Steven Pinker
  • Sam Harris
  • Jordan Peterson
  • Noam Chomsky
  • Sean Carroll
  • Sam Harris
  • Yuval Noah Harari
  • David Suzuki
  • David Attenborough
  • Neil deGrasse Tyson
  • Stephen Hawking
  • Lawrence Krauss
  • Elon Musk
  • Dan Carlin
  • Stewart Brand
  • James Hansen
  • Matt Ridley
  • Richard Dawkins
  • Jeff Hawkins
  • Frans de Waal
  • James Lovelock
  • Jared Diamond
  • Joe Rogan
  • Lex Fridman
  • Rob Reid
  • Michael Pollan
  • Ken Burns
  • Chris Hedges
  • Vaclav Smil
  • Niall Ferguson
  • Alan Greenspan
  • Thomas Sowell
  • John Kenneth Galbraith
  • David Stockman
  • Joseph Stiglitz
  • Paul Krugman
  • Russ Roberts
  • Penn Jillette
  • Eric Weinstein
  • Michael Shellenberger
  • Michael Shermer
  • Alex de Waal
  • Sabine Hossenfelder
  • Brian Cox
  • and many others

Why is it that there is no famous intellectual (nor political or business leader) who understands thermodynamics and genetic behavior?

  • ???

Why is it that the few intellectuals who do understand thermodynamics and genetic behavior are distinctly not famous?

  • Dennis Meadows
  • Tom Murphy
  • William Catton
  • William Rees
  • Charles Hall
  • Nate Hagens
  • Tim Garrett
  • Jay Hanson
  • David Korowicz
  • Tim Watkins
  • Paul Chefurka
  • Reg Morrison
  • Jack Alpert
  • Richard Heinberg
  • Joseph Tainter
  • Chris Clugston
  • George Mobus
  • Dave Cohen
  • Gail Zawacki
  • Jason Bradford
  • Nicole Foss
  • Steve Ludlum
  • xraymike79
  • and very few others

This can’t be an accidental coincidence because famous polymaths are fluent in many topics.

I suspect the answer is that famous polymaths deny everything they don’t want to know, and they wouldn’t be famous if they didn’t, because their audience doesn’t want to understand those topics either.

It’s a fascinating phenomenon to observe once you see it.

P. S.

Why is there only one person in the world, a cranky old retired electrical engineer, who writes about genetic reality denial?

I suspect because denial is the reality that must be most aggressively denied to avoid collapsing the house of cards that keeps us functioning.

By James Kunstler: The Uncomfortable Hiatus

The Next Financial Crisis Lurks Underground

I haven’t posted anything by Kunstler for a while. When he’s occasionally good, he’s really good, like today.

http://kunstler.com/clusterfuck-nation/the-uncomfortable-hiatus/

And so the sun seems to stand still this last day before the resumption of business-as-usual, and whatever remains of labor in this sclerotic republic takes its ease in the ominous late summer heat, and the people across this land marinate in anxious uncertainty. What can be done?

Some kind of epic national restructuring is in the works. It will either happen consciously and deliberately or it will be forced on us by circumstance. One side wants to magically reenact the 1950s; the other wants a Gnostic transhuman utopia. Neither of these is a plausible outcome. Most of the arguments ranging around them are what Jordan Peterson calls “pseudo issues.” Let’s try to take stock of what the real issues might be.

Energy: The shale oil “miracle” was a stunt enabled by supernaturally low interest rates, i.e. Federal Reserve policy. Even The New York Times said so yesterday (The Next Financial Crisis Lurks Underground). For all that, the shale oil producers still couldn’t make money at it. If interest rates go up, the industry will choke on the debt it has already accumulated and lose access to new loans. If the Fed reverses its current course —say, to rescue the stock and bond markets — then the shale oil industry has perhaps three more years before it collapses on a geological basis, maybe less. After that, we’re out of tricks. It will affect everything.

The perceived solution is to run all our stuff on electricity, with the electricity produced by other means than fossil fuels, so-called alt energy. This will only happen on the most limited basis and perhaps not at all. (And it is apart from the question of the decrepit electric grid itself.) What’s required is a political conversation about how we inhabit the landscape, how we do business, and what kind of business we do. The prospect of dismantling suburbia — or at least moving out of it — is evidently unthinkable. But it’s going to happen whether we make plans and policies, or we’re dragged kicking and screaming away from it.

Corporate tyranny: The nation is groaning under despotic corporate rule. The fragility of these operations is moving toward criticality. As with shale oil, they depend largely on dishonest financial legerdemain. They are also threatened by the crack-up of globalism, and its 12,000-mile supply lines, now well underway. Get ready for business at a much smaller scale.

Hard as this sounds, it presents great opportunities for making Americans useful again, that is, giving them something to do, a meaningful place in society, and livelihoods. The implosion of national chain retail is already underway. Amazon is not the answer, because each Amazon sales item requires a separate truck trip to its destination, and that just doesn’t square with our energy predicament. We’ve got to rebuild main street economies and the layers of local and regional distribution that support them. That’s where many jobs and careers are.

Climate change is most immediately affecting farming. 2018 will be a year of bad harvests in many parts of the world. Agri-biz style farming, based on oil-and-gas plus bank loans is a ruinous practice, and will not continue in any case. Can we make choices and policies to promote a return to smaller scale farming with intelligent methods rather than just brute industrial force plus debt? If we don’t, a lot of people will starve to death. By the way, here is the useful work for a large number of citizens currently regarded as unemployable for one reason or another.

Pervasive racketeering rules because we allow it to, especially in education and medicine. Both are self-destructing under the weight of their own money-grubbing schemes. Both are destined to be severely downscaled. A lot of colleges will go out of business. Most college loans will never be paid back (and the derivatives based on them will blow up). We need millions of small farmers more than we need millions of communications majors with a public relations minor. It may be too late for a single-payer medical system. A collapsing oil-based industrial economy means a lack of capital, and fiscal hocus-pocus is just another form of racketeering. Medicine will have to get smaller and less complex and that means local clinic-based health care. Lots of careers there, and that is where things are going, so get ready.

Government over-reach: the leviathan state is too large, too reckless, and too corrupt. Insolvency will eventually reduce its scope and scale. Most immediately, the giant matrix of domestic spying agencies has turned on American citizens. It will resist at all costs being dismantled or even reigned in. One task at hand is to prosecute the people in the Department of Justice and the FBI who ran illegal political operations in and around the 2016 election. These are agencies which use their considerable power to destroy the lives of individual citizens. Their officers must answer to grand juries.

As with everything else on the table for debate, the reach and scope of US imperial arrangements has to be reduced. It’s happening already, whether we like it or not, as geopolitical relations shift drastically and the other nations on the planet scramble for survival in a post-industrial world that will be a good deal harsher than the robotic paradise of digitally “creative” economies that the credulous expect. This country has enough to do within its own boundaries to prepare for survival without making extra trouble for itself and other people around the world. As a practical matter, this means close as many overseas bases as possible, as soon as possible.

As we get back to business tomorrow, ask yourself where you stand in the blather-storm of false issues and foolish ideas, in contrast to the things that actually matter.

Arnica Lake to Elk River Hike

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Click here for more photos and videos

My good friend Ian and I have regularly hiked Strathcona Park since we were 16 in 1975. We decided to celebrate turning 60 by tackling the toughest hike in the park.

The first 3 days on Phillips Ridge were excellent although the “undulations” and “lots of down” were much tougher than we expected. A bout of food poisoning likely caused by trail mix purchased from a bulk food bin cancelled our planned side trip to the Golden Hinde peak. Even if healthy I’m not sure we would have tackled it after speaking with returning hikers who spoke of feeling exposed and unsafe, and wishing they had brought helmets to protect themselves from falling boulders. Seeing the route to the peak up close was intimidating. We have new respect for people who accomplish the Golden Hinde peak return trip.

The final “3 day adventure” on the Elk River “route” proved to be a bushwhacking nightmare. Each day we made only about 30% of our expected progress despite grueling effort. We had the best available maps and guidebook but the “route” had no flags or cairns and no signs of recent use. The maps were out of date and did not reflect obstacles like new landslides. On a whim, just before departing, I purchased a digital version of our paper map and we would have been screwed without it and my phone’s GPS. Even with the GPS, we had to retrace many steps and elevation changes many times.

Tired, discouraged, not wanting to face the ordeals of retracing our path, and believing it unlikely we could complete the Elk River route before running out of food, we decided to punch the eject button.

We were very lucky to have brought a satellite phone and to have found a helicopter not already committed to fighting forest fires with a pilot brave enough to fly in low visibility smoke. Our “rescue” was quite a thrill for me because I had never been in a helicopter and the heavy smoke forced the pilot to skim the trees down a river valley to avoid bumping into something hard. Click the link above for some great video.

Next year I hope we do the Bedwell trail out to the west coast but we’ll first find some people who have recently done the trail.

In case you’re wondering, I detected a lot of denial in my brain throughout the adventure. 🙂

If this blog goes dark…

A good friend and I are departing tomorrow on an epic 6-8 day hike in Strathcona Park to celebrate turning 60 this year.

The two of us began hiking this beautiful park located in the center of Vancouver Island in 1976, as this picture of me on a peak proves.

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Our path, with 60+ pound packs, begins at Arnica Lake and ends at the Elk River, with side trips to Marble Meadows and the Golden Hinde, which is the highest peak on Vancouver Island.

BRMB MapA

If this blog goes dark you will have observed another excellent example of denial.

In this case, 60 year olds who deny they are too old for grueling adventures.

Wish us luck and don’t worry because I can’t think of a better way to go.

By Bodhi Paul Chefurka: I’d rather light a candle than curse the darkness

Approaching the Limits to Growth

 

Paul Chefurka was an early thinker about overshoot and has a large body of excellent work.

He’s also an inspiration for many people wondering how to live with their knowledge of reality.

This 2013 Facebook post by Chefurka provides a nice summary of his journey.

https://www.facebook.com/Bodhisantra

The last six months have seen the most wrenching shift for me since the day I discovered the potential for collapse lurking behind Peak Oil. Moving from a profoundly humanist perspective to a deeply impersonal thermodynamic understanding of the world and its creatures has completely upended my philosophical applecart.

I’ve been steeped for my whole life in the traditions of the Age of Enlightenment, complete with the notions of human agency, reason, free will, morality and the perfectibility of man. My political background was the 1960’s socialist, social-justice movement where concepts of fairness and equality reigned supreme. All that has now crumbled to dust.

My journey to this strange new land began with a simple question. I wanted to know why we couldn’t seem to do anything to stop climate change despite everything we know about its causes and effects.

I first looked outward – “Who is to blame?” Then I looked inward – “What is it that makes us so eager to accept activities that many of us know are dangerous and wrong-headed?”

In the search for answers I kept pulling on the various threads I found, then going over to whatever wiggled in response, finding the threads connected to that, and pulling them in turn.

When the fabric finally unraveled I found myself staring at the Second Law of Thermodynamics, with nobody to blame and precious little to be done about our predicament.

In a way I feel betrayed. Everything I’ve been told about how the world works appears to be wrong. The traditional explanations don’t truly explain what I see happening in either the outer or the inner world. Very few people realize that our precious “Story of the People” – our scientifically derived, culturally grounded, explanatory narrative of the world and our place in it – is little but a comforting, self-deluding fabrication. It’s a fantasy borne more out of wish fulfillment than out of any realistic assessment of what’s actually going on. It may be the greatest piece of confirmation bias that we have ever perpetrated on ourselves.

I feel betrayed by the scientists, the politicians, the activists, the philosophers and engineers. It’s enormously frustrating to have come to this realization about the world, in my limited capacity as a single private citizen. It feels incredibly disempowering, which is not surprising – the very concept of “power” has always been defined by those same scientists, politicians, activists etc. As that worldview falls away I even have to realign my inner definitions of power and relationship.

But while I feel a huge rupture of dislocation, I also feel a soaring sense of freedom and liberation. No longer shackled to shame, blame and guilt, I can see people and events through a less reactive, emotionally filtered eye. The world seems clearer. What people do and why they do it is suddenly obvious. What’s going on in the world has begun to make sense for the first time in my 62 years.

For me the trade-off between clarity and comfort has been worthwhile. As difficult as this journey has become, I’d rather light a candle than curse the darkness.

By Richard Nolthenius: Will the End of Growth Tame Climate Change?

Angry Tiger

Dr. Richard Nolthenius is a climate scientist that I respect. I have previously posted some of his excellent work here and here.

Nolthenius stopped by today to leave a comment. This gave me an opportunity to ask a climate expert a question that I have wanted to ask for a long time:

Do you think the end of economic growth (which will probably occur soon due to low-cost oil depletion) will be enough to prevent a climate incompatible with civilization?

Here is his answer:

No, not at this point.

The old IPCC carbon budgets are woefully politically manipulated and wrong, missing key physics and assuming massive carbon capture and sequestration later this century to boot.

We are crossing the permafrost thaw tipping point right now – since Vaks et al 2013 showed that +1.5C was the tipping point, and we’re arriving there right now, as of the end of 2016 +1.48C if you use the new Schurer, Mann et al 2017 work on what is the more reliable measure of “pre-industrial” temperature. We’re passing the West Antarctic melt tipping point too, and even at today’s temperatures the Arctic Ocean is soon to be free of summer ice.

It’s too late for merely ending growth (as if “merely” were easy or going to happen !).  We’ll need active human-effort’ed atmospheric CO2 removal and sequestration. AFTER ending growth, AFTER ending all current CO2 and GHG emissions.

Also, merely ending growth doesn’t stop energy generation. We still need to support all past growth. Even getting to the point we can do that with renewables entirely, still means we need much more CO2 emissions from factories etc just to build the infrastructure to put in place an entirely new grid and energy system. 81% of primary energy consumption in the world today is still fossil fuels and that hasn’t budged for the entire century we’re in. I’m reading 2% growth in emissions in 2017, and predicted 2% more in ’18 and another 2% in ’19. While renewables has a good % growth rate, it’s on such a tiny base that fossil fuels even at only 2% are easily able to keep the same percentage of total energy.

The only solutions at this point are going to be EXPENSIVE, as in maybe 5-10% of GDP for a very long time, to do the transition and take Earth to the Urgent Care ER. And we as a global society only do “expensive” when we get short-term bling out of it.

No; we have to grow up, spiritually and emotionally, in a huge hurry, and so far I see none of that, but instead I see more fear-induced wall building, demagogues, and violence.

As scarcity increases, I expect to see more of it, not a “come let us love together” transformation, I’m sorry to say.

 

 

 

On Oil

Oil

JTRoberts recently made an important and insightful observation which I paraphrase and elaborate here.

Oil is a non-renewable resource that we extract from the earth. Oil companies are motivated by profit so they start with low-cost reservoirs and as those deplete they move to increasingly higher cost sources like water injection, offshore, tar sands, and fracking.

All economic activity depends on energy, as the laws of thermodynamics explain, and as the near perfect correlation between wealth and energy consumption confirms.

Oil is the keystone energy because oil is required to extract or capture all other forms of energy including food, coal, natural gas, wood, solar, wind, nuclear, and hydroelectric energy.

The cost of oil can be viewed as a tax on economic activity. Our economy is configured to operate profitably on about $20 per barrel oil. We have already captured most feasible energy efficiency gains making it difficult for our economy to operate profitably on oil over $20.

Thus, as the cost of extraction due to depletion of low-cost reserves pushes the price of oil above $20, the difference must be made up with debt.

At today’s $70 oil, which we burn about 96 million barrels per day, that works out to 96 * 365 * ($70-$20) = $1.8 trillion, which as predicted, is about the rate that global debt is increasing.

If you believe we have many years of oil left, then you must also believe that debt can continue to increase much faster than our income for many years without consequence on the value of money.

Money has value because we have confidence that the debt which creates our money will be repaid with interest, which can only occur when the economy grows, which can only occur when the quantity of energy we burn grows, which due to continually increasing extraction costs, can only occur when debt grows faster than the economy, which at some point will erode our confidence, which will reduce the value of money, which will reduce the amount of energy we can afford to burn, which will reduce economic activity, which will further erode our confidence in the value of money.

Do you see our energy and climate predicament?

Do you see why our leaders deny we have a problem?

Do you see why the longer we deny the problem the worse the outcome will be?

Additional Thoughts (30-Jul-2018)

Most people do not think we have an imminent oil problem because they’ve read in the news that there is 50 years or more of unconventional oil left to extract. While probably true, this fact is misleading.

What does it mean to say oil is depleted?

Depleted does not mean that all the oil is gone. Depleted means that all the oil we can afford to extract and purchase is gone. Big difference.

To be a little more precise, depleted is the point at which the cost to extract oil exceeds the price that our economy can pay and still grow.

Today we are paying the price and achieving a little growth, but it is taking a lot of debt at a very low interest rate to do so, and each year it takes more debt.

The ability of our global debt-backed fractional reserve monetary system to function (i.e. not collapse), and the high standard of living we enjoy, and the high capital things we invest in like modern infrastructure and technology, all fundamentally depend on economic growth. If growth stops our system will collapse, and our monetary system will have to be replaced with a different design, such as an asset-backed full reserve system, which will mean much lower standards of living, and much less availability of many things we currently take for granted.

I wrote an essay on economic growth which I recommend you read because many people think they know why we want economic growth but in fact don’t know the main and much more important reason.

So what evidence exists that oil is getting close to being depleted?

  1. Our economy in aggregate is losing money. Debt is growing much faster than the economy. It now takes over $3 of debt to generate $1 of growth. This is not sustainable. A sustainable economy invests $1 of debt to create more than $1 of growth, as we did prior to 1970.  It’s important to note that this state of affairs exists despite the interest rate (i.e. the cost of money) being historically low (in some cases zero). It’s also important to note that this is a global phenomenon. So we can’t blame bad leaders, or the political system, or the culture. Every country in the world is growing their debt in an unsustainable manner, or wants to. The common denominator is energy which is the most important thing that drives every economy in the world. And the price of energy has been trending up for 5 decades simultaneous with our debt.
  2. The US central bank is starting to increase interest rates for their money that the world uses to buy oil. There are many different ways to interpret this action. My own speculation is they are worried about confidence in their money and want to maintain or strengthen its purchasing power for oil. Looking through the other side of the lens, this is the same as saying the Fed wants to lower the price of oil because they are worried about inflation since oil is required to make almost everything. If the price of oil drops, the supply of oil will drop.
  3. Most companies that extract high-cost oil are struggling. For example, the majority of US fracking companies are losing money.
  4. Countries that are highly dependent on profits from their high-cost oil reserves are struggling. For example, Venezuela with the largest unconventional oil reserves in the word seems to be collapsing.
  5. Countries with large low-cost reserves are behaving oddly for countries that used to be fantastically wealthy. For example, Saudi Arabia has implemented aggressive austerity and wanted to sell a portion of their state oil company to raise money. They’ve recently backed off from this sale, possibly because it would have required them to submit to an independent audit of their remaining reserves, which some smart people speculate are much lower than stated.
  6. War-like behavior is increasing towards countries that have large low-cost oil reserves and that are not viewed as close friends. For example, Russia and Iran.
  7. Weak countries that lack the ability to borrow US$ needed to buy oil are struggling.
  8. Our central banks, economists, and politicians appear to have no clue about what is causing our persistent global economic problems. I speculate this is a combination of the fact that they’ve never needed to understand thermodynamics until now, and the fact that they deny unpleasant realities as explained by Varki’s MORT theory. I do find it very telling that not one senior leader anywhere in the world has spoken publicly about this issue. A few must understand our predicament and they must be terrified.