Delusions of Finance: Where We are Headed

Back in October, I participated in the 2nd International Biophysical Economics Conference at SUNY-ESF in Syracuse, New York. Charlie Hall had written to me, inviting me to come and give a talk. Specifically, he wanted me to go back to my post from January 2008 called Peak Oil and the Financial Markets: A Forecast for 2008 and explain why my forecasts had turned out pretty close to correct, while many others widely missed the mark. The title he suggested for the talk was Delusions of Finance.

My financial forecast really has implications for beyond 2008, so I added some more forecasting thoughts as well. In this post, I would like to share this presentation with you. A download of the presentation, plus an audio recording, are available at the Biophysical Economics Conference Proceedings website under Gail Tverberg.

I am a casualty actuary by training and spent many years doing forecasting and modeling as an insurance company employee and later as a consultant to insurance companies. Many of these companies were small medical malpractice insurance companies that provided insurance for a group of hospitals or physicians. Medical malpractice claims are notoriously slow to be reported and to be paid, so we had to forecast many years of reporting and payments, (and corresponding investment income). These models were used both for determining appropriate insurance rates and for determining balance sheet reserves for these companies. Quite often I was involved in putting together models for proposed new companies in order to estimate likely capital requirements. I was also prepared a lot of estimates of the likely impacts of medical malpractice reforms.

All of this didn't really give me any special training for making financial forecasts relating to peak oil, but it did give me a lot of practice with making forecasts and trying to think outside the box. I needed to figure out what was unique to each situation, and figure out a way to model it. I hadn't gone through the standard MBA training, but I had bumped up against a fair amount of it along the way.

My background goes back far enough that I had a chance to see how badly insurance companies fared back in the 1974 period, when oil shocks affected insurance companies. One of my former employers went bankrupt, and another one nearly did. I could see that if a similar situation happened now, other financial companies would likely be affected as well.

Quite a bit of the rest of this presentation is fairly self-explanatory, especially if you have seen some of my other presentations, so I won't provide too much in the way of comments.

Slide 3

This is a link to the full post. You may want to read it, if you haven't previously.

Slide 4

My later slides explain these points more fully.

Slide 5

Slide 6

Slide 7

If you stop to think about it, there a quite a few differences in the way the economy functions in a period of economic growth and in a period of economic decline. The assumption of continued economic growth by traditional economists (who don't consider resources and their limits) has been so strong that most have not even considered what the economy would look like in a period of long-term decline.

Slide 8

Many have observed that there would have been defaults, even without peak oil, because of the reckless lending that had been done. I would contend that at least part of the reason the lending had been done was to give the illusion of growth, when there really wasn't much apart from that generated from very loose lending standards. Furthermore, even if loose lending standards were part of the problem, the problems related to peak oil made it worse (and can be expected to cause more problems in the future).

Slide 9

When there isn't a problem like peak oil (or limits to growth in general), debt defaults are in fact pretty much independent. That is why the system for determining insurance charges to be included in the interest rates charged for loans worked pretty well until peak oil came along. In the absence of peak oil, a homeowner or businessman defaults because of some particular problems he or she has. Past history is likely to be predictive of the future, because while there are different individuals defaulting, the average number of defaults will tend to be pretty stable from year to year.

Slide 10

It is possible that there will be some loans in a declining economy, but their use will be much less widespread than we see today. Their cost will also tend to be higher.

Slide 11

When lending is increasing, businesses have more money to invest in new plants and equipment and homeowners find it easy to get loans of new homes or for home improvements.

Slide 12

As countries cut back their stimulus funds, the decline in credit available may be especially severe. I noticed this article this morning:

Lenders warn of mortgage shortages

Britain’s banks and building societies have warned that they will have to slash mortgage lending and raise rates on home loans if the government insists on prompt and full repayment of the £300bn they have received in state support since 2008.

Slide 13

Slide 14

In the US, homeowners used their homes as a piggy-banks when home values were rising. They could refinance their homes, remove the built-up equity, and buy new cars, furniture, and other things. When there are fewer home buyers (because of less loan availability), and continually declining values, the effect is reversed.

Slide 15

Credit problems are really what are likely to spread the lack of oil to a much broader reduction in fuel use, essentially through growing recession. This recession may affect OECD to a greater extent than non-OECD, but there are such great links between the two that I expect eventually all will be affected. This reduction in fuel use is likely to be described in the press as "reduced demand"--which it is, but because of recession induced by credit contraction (ultimately going back to lack of growth in oil supply).

Slide 16

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Slide 18

I am sure that some trade will continue, even if countries have financial problems. But it seems to me that a very large amount of trade is needed to keep up our system at the current level. High tech equipment would seem to be hardest to create with local materials alone. We can make simple things, like wheelbarrows and shovels with recycled steel, but it is not clear that precision parts for things like computers and other high tech equipment can be made without exactly the right imports from around the world, and factories set up with the right controls.

Slide 19

These changes could start very soon. It is hard to know precisely how things will play out.

Thanks Gail. It's a great summary of our current predicament.

I think predicament is the right word if:
Problem = situation that can be fixed
Predicament = situation that can not be fixed, only adapted to.

We've all read "The Long Decline," it would appear, and like me you would prefer that view... gradual, perhaps punctuated, with periods of "recovery" intervening.

Good luck with your adapting. I am trying to do my best likewise. Have a good week.


I think you mean "The Long Descent". I haven't read it yet...but it just arrived in the mail today!

Good presentation.

The sticky wicket that really needs a slide (or two) is the fact that when growth limiters become apparent, the political process deteriorates and becomes dysfunctional. The situation is worse than you depict.

It seems like that feedback loops that work off this all work to reduce output. As you say, when growth limiters become apparent, the political process deteriorates and becomes dysfunctional. I think that when countries default on their debt, there is a big chance of political disruption as well, and even changes of borders of countries.

There is also the issue that has been pointed out frequently on The Oil Drum of disruption in countries like Mexico if oil exports are dropping off rapidly, and the country needs these exports for tax revenue.

All of these things seem to work together, but not in a good way.

Gail, thanks for sharing your point of view which seems to be correct regarding what happened the last 2 years and is happening now in f.i. Greece.

It seems like that feedback loops that work off this all work to reduce output.

Gail, if debt unwind is going to reduce the availability of all fossil fuels (less demand) then scaling up the THAI process and other new processes to extract heavy oil and bitumen seems to make little sense.
In this case many of those projects will never be built, at least not in the short run.

It seems like prices pretty much dictate what really gets built. If we had $150 barrel oil, I expect that both a lot of oil from the oil sands would be profitable (with THAI or another process) as would very deep water oil. If oil prices won't stay up, most of these won't be expanded. Despite all we hear about oil sands, production is not very high (about 1.3 million barrels a day), and hasn't been rising very rapidly.

Indeed Gail, but your post suggests that $ 150 oil won't last a long time.
OTOH, your mentioned in the post about THAI from yesterday says: improved economics: lower capital costs; 1 horizontal well, no steam and water handling facilities. Lower operating costs.
Even then: if oil demand goes far down during an economic collapse, those cheaper planned projects won't be built soon.

On any of these, we will have to see. What works in the lab may need a lot of adaptation to work in the field, and capital costs aren't really known until all of the "kinks" get worked out of the system. Even with lower capital costs, it is not likely to scale up quickly. Any method that starts with bitumen is going to be slow. I know one of the links I posted talked about production of 350 bopd at one of the sites they are working on. That is 350, not 350,000, barrels of oil per day. It takes a lot of scaling to get that up to a reasonable amount.

I know one of the links I posted talked about production of 350 bopd at one of the sites they are working on.

Yes, but another one (Conklin THAI pilot project)targets 1500 bopd. The May River project is planning for 100.000 bopd. International potential is very big, but as you write: how will everything work in the field ? And when oil demand goes far down in a few years they don't start building more of those projects in the near future.

One of the surprising counter-intuitive outcomes of Peak Oil has been the adverse impact on investment in alternative energy.

I don't think many of us saw this coming, though in retrospect it makes sense. If oil is wealth, then lack of oil will naturally result in less wealth to invest in alternative energy projects- at least in the short term.

Perhaps a lot of the investment in alternative energy was driven by a desire to do something about Global Warming rather than earnest attempts to counter a decline in fossil fuel availability?

I think we all predicted that PO would result in a mad ( if belated) scramble to invest in every possible type of alternative energy going.

When people eventually realize that we are not returning to BAU, this may turn around- or perhaps not if the confidence of society is hit too hard.

Interesting thought Fingolin.

I believe you may be right.

If borrowed money perhaps with govt gaurantees cannot be had, utility scale systems in my opinion are not likely to be built.

I think that wind farms in particular are now at a point where some wind farms could be financed entirely by investors using thier own money, probably pooled, but I am afraid the potenial investors will look at the potential income stream as unreliable and or very limited for fear of having thier selling price capped by regulation if they want to distribute over the grid.

There might very well be a gold rush for small scale operators-those involved in home sized and business sized installations.

Unfortunately , the continued reduction in the purchase cost of the actual equipment , the panels or the turbines themselves, apparently depends as much on ever increasing large scale production as it does on innovation.Innovation itself may slow to a crawl, starved by a lack of research money.

Nasty feedback loops !

We haven't been seeing much in a way of cost reduction for wind. In fact, the new "in" thing is offshore wind, which is even more expensive than onshore wind, per kWh of generated electricity. Long term maintenance is likely to be a challenge as well, with salt spray constantly hitting the turbines, and the huge size of the turbines.

Small size turbines have been a disappointment, because when the turbines are not elevated to high levels above the ground, the amount of electricity generated is low.

In any reasonable sense, people are going to be poorer going forward. It is going to be difficult for them to afford high priced electrical power, in any quantity. So whether or not governments restrict rates, it is going to be hard to collect the funds for a large amount of high priced electric power.

I think that there is a substantial chance that operators for wind turbines won't be able to keep collecting the funds they need to pay off their debt. The reason could be anything from capped electrical rates, to problems with transmission lines that do not permit transmission of the electricity to the location where it is needed to unavailability of maintenance service for the turbines. So investors are right in being worried about taking on this kind of debt.

Old Farmer Mac,

Some time back you asked me to post an email address.

Here is one I use most of the time. It previously had been in my profile but it began attracting a lot of spam , IMO from being too obvious there for webbots to find.

In disguise then:
The Last CE at Yahoo dot Com
Note. Compress all words preceeding the AT sign.

I do have a spam filter on that email address and it works most of the time.

We have 5 inches of light fluffy snow on the ground here. The weather is more akin to what I remember on the farm back in the early 40s. Lots of snow but little icing over of the ponds(which they always froze over back then).

Airdale-A rural,southern,hickish,stupid,redneck of the vast flyover wastelands.I also play the banjer like the same type in "Deliverance" and ah eat grits a rat smart fer brekfest, some bileing on the 'far' wrat now.

If oil is wealth, then lack of oil will naturally result in less wealth to invest in alternative energy projects

fingolfin, I nominate this as quote of the day.

That is a good point. Alternative energy is to me someone's plan for hoarding a little of the energy we have now, for use later. As it becomes more difficult to do, the interest will go down.

(hi Gail & nice blog)

The interest (in Alt-E projects) may go up, but the means to accomplish anything are going down. Kind of like how almost no one would start up new industrial operations during GD1 ~ no Vulture Capital available regardless of the want for it.

when growth limiters become apparent, the political process deteriorates and becomes dysfunctional

That's a sign we'll just have to keep watching for :P

Great post, Gail!

But darn it, didya have to be so right?

Yeah, I had a similar thought. I mean when you go down the list from the January 2008 post and look back from the January 2010, you have to ask something other than "what were they thinking?" More like "were they thinking?"

Gail, I bet you got the Super Bowl right, too!

I went to a party and munched on food, but stayed away from betting. I think that was a good choice.

Gail, this is terrific and very thought provoking. You should send it to Bloomberg and see what they say? I totally understand and agree that feedbacks will possibly/probably exacerbate the changes and/or decline. It is interesting to note the decline in available refining etc. in anticipation of a decline in fossil fuel use.

I have a productivity question for you or other readers.

I am confused as to how the idea of productivity is really established? For example, is it simply the GDP divided by labour costs? My question/comment is in consideration of how unproductive Canada is supposed to be in comparison to US workers. In Canada, we are world class miners and smelters. We are top notch fisherman and fish the same waters and species as Alaskans. We are world class loggers and sawmillers. Our agri business is a world supplier of grains. We have a profitable aero-space industry as well as software developers. Yet we are supposed to be less productive than US workers? I don't get it, and I find it hard to believe. Our Parliamentary Govt seems to muddle through without the wild swings of the US, we have excellent universities and school systems, and our banks make profits and are not on life support. We are more unionized and our wages are higher, but that is always under attack by the same capitalists, everywhere.

If corporate profits are a function of off-loading workers to what is basically slave labour economies, then I can see how we cannot compete on paper. In reality, softwood tariffs product US forestry, and there are also limits on just about everything else.

I have had no economics courses beyond discussion groups, reading, and my own intuition. It seems to me truth and common sense is elusive.

Someone tell me, if the US economy is supposed to be so productive, why are there protective tariffs on Canadian goods, and other producers?


I think it might be better if readers sent an e-mail with a link to Bloomberg, especially if there is a reporter you have corresponded with before.

I am afraid productivity calculations is not something I have studied. It is not something that affects medical malpractice insurance companies much.

Labor productivity is GDP divided by man hours.

I have no concerns about the reliability of the productivity statistics. Most developed countries use similar methodologies.

Canada is a supplier of raw materials, much of which are processed in the Unites States. Since productivity tend to be the highest in manufacturing, that probably explains any purported productivity gap between the US and Canada.

However, I was not aware there was a big gap.

RB wrote...
"Labor productivity is GDP divided by man hours."

So how much of our "economy" was debt vrs canada?

How much of our economy was selling trinkets to one another. Some range around 70% of GDP is retail.

So we americans are better (and faster) at buying and selling things we don't need on credit than you are.....

Strong growth in US debt fueled a consumption binge during the first half of this decade. The Bush tax cuts increased disposible income and government debt. The personal savings rate fell to almost zero and total personal debt sharply increased, particularly as housing became a bubble. It was the surge in the value of homes and apartments that provided the collateral that households used to leverage themselves.

Debt per se is not necessarily bad. If the US government had run big deficits in this decade because they were building a first class public transport systems then that debt could be justified as a high payback investment.

Instead too much of the debt was just consumption by borrowing against future income and overpriced real estate.

Hope that helps.

"70% of GDP is retail."

it's usually phrased as "consumer spending" which is distinct from "retail" since it includes all healthcare. But even that is misleading because half of that is actually spent by the government.

I, too, have been suspicious for a long time about "productivity". I suspect that it has been rising in the US because we have off-shored so much work and the middle-men, sales force and management staying in the US have raked off a larger fraction of the profits of industry. This would make the remaining workforce seem to have created a larger portion of the value of goods and services sold.

Any real experts on this subject lurking out there?

Too much bubble GDP based on finance and debt would seem to explain it just fine.

The explanation that I read a couple of years ago was that inflation values were manipulated to an arbitrarily low level, and the excess then assigned to GDP, making everything look peachy.

The idea being: if you add up the value of all production for the year, you have a gross GDP value, but it also includes value increases due to inflation of course. To get a true value for GDP you have to subtract the amount from the gross value that you decide was due to inflation. If you think about it for a minute, its pretty easy to see the advantage of being able not just to claim a low inflation rate, but also claim a healthy increase in the GDP. The last ten years or so of economic "official story" vs "what it seemed like on the ground" makes more sense if they were doing that sort of manipulation.

Hi Daxr,

That's rubbish. This is nothing more a version of populist conspiracy theories. The BLS statistics are high quality and not influenced by political decision making.

When I was doing economic research, I worked with the BLS to understand their data, including its strengths and weaknesses.

As I noted in an early post, the real issue is not US economic data, but the very sharp redistribution of income and wealth to the top 20%.

More and more is going to fewer and fewer. The Census Bureau has published many articles on this phenomenon.

"That's rubbish. This is nothing more a version of populist conspiracy theories. The BLS statistics are high quality and not influenced by political decision making."

How about this then?

It may well be rubbish, and I have nothing to go on myself but what seems plausible, from the outside.

John William's ShadowStats page suggests that real inflation in the last ten years in the USA has been around 7-10%. Meaning that the USA's real GDP has been falling by about 3% a year.

The market price of gold seems to agree with his assessment.

Also, keep in mind that the way the CPI is measured was changed during the Clinton years. The CPI used to include the price of houses. If house prices were kept in the CPI then interest rates would have had to be a lot higher - and the housing bubble would never had happened.

I'm not an economist but I remember reading something about the way imports were treated was incorrect. In auto manufacturing assembly worker hours are trivial compared to making parts, which are now largely imported.

Basically correct. The problem is that things like cars assembled here do not have the labor in their parts correctly allocated. Thus a car could have 50% or more of its parts imported yet this is treated as a productivity gain.

The chances of this getting fixed are probably fairly slim.
Its rather obvious give the exploding debt levels that we have not seen and real productivity gains.
Probably the last increases occurred in the 1990's.


I hesititate to take this working paper as definitive. Same comment applies to the Daily Finance link.

This is an unpublished paper. They may have a point, but we don't know that yet.

The exploding debt levels in this decade were not due to surging investment in plant and equipment or public infrastructure. It was financing consumption.

Why you think that debt-financed consumption should lead to surging productivity growth?

Focus on the obvious - the redistribution of US income to the earners in the top 20% income bracket.

I am not sure what you mean by an expert. I was trained as an economist. I understand how the statistics are constructed.

First of all, what is produced outside of America is not included in domestic GDP. So if a company outsources software development to India, then the value of that software development is included in India's GDP.

Output refers what is produced on US territory regardless of where the company is headquartered. If Microsoft sells its software using servers in Ireland, that is not US output. It is Irish output.

American productivity is high for many reasons, including cheap access to raw materials, a very high strong university system, good roads and highway, a system encourages entrepreneurship, etc.

The real reason Americans express skepticism about economic statistics is that they assume a one-to-one correspondence between the economy's performance and their own private fortunes.

Unfortunately, that is not the case today.

The US economic pie has grown moderately over the last 30 years, but how the pie is sliced up has changed dramatically.

A much higher proportion of US income goes today to the top 20% of households.

The US Census has lots of data and it all points to the same phenomenon, increasing US income equality. Look at income of American senior management. Their incomes have been growing much faster than the average household. In the absence of strong US economic growth, that implies of redistribution from the less advantaged to the more advantaged.

Paulo, Gail, and all,

Another excellent subject! I invite you to go to and read this online book. It explains in great and understandable detail what real productivity is. As the bankers teach their tellers, you learn to recognize counterfeit bills by constantly handling the real ones. The fake ones, then, feel funny. We have been so long without sound economic theory (and I tend to fall in with OFM and Airdale in being skeptical of TPTB as a source of useful truth) that it's as if all we have handled, economically speaking, is the counterfeit stuff.

I also invite you to read what Thomas Jefferson and Benjamin Franklin wrote concerning proper economies and how to gain wealth. For example, Franklin wrote in "Positions to be Examined" that there are three ways by which a nation may become wealthy:
1) By war, thus taking by force the wealth of other nations,
2) By trade, which to be profitable requires cheating. If we give and receive an equal amount of goods and services through fair trade, their's no profit other than that obtained in our own production cycle. It's just nicer to be able to eat oranges instead of only bread, trading Canadian wheat for Florida oranges,
3) By agriculture, through which we plant seeds and create new wealth as if by a miracle.

I also invite you to check out the National Organization for Raw Materials at These sources explain far better than I can in a short comment how an economy truly works, and how by bringing raw materials into the economic cycle at less than a parity price will always lead to a shortfall throughout the economy, causing people to either lower their standards of living accordingly or borrow money to make up the difference, which leads to greater imbalances and greater debt, coupled with greater gambling devices (the house loan scam, for example) until it all crashes under the weight of reality.

Gail, you are absolutely right--there is a lot of unwinding to happen yet. According to raw materials theory, things won't truly start upward again until all crashes down to the level at which the price that raw materials enter the economy creates enough money to pay for all the processing, handling, marketing and consumption of those raw materials, plus enough profit to do it all again next year.

Historically, centralized bankers have created a false economy through war. War involves the creation of materials that rather quickly get consumed, creating the need for more materials, paid for by war bonds, but the economy is bogus unless the winning nation goes ahead and kills off most of its opponents and takes their wealth to pay for the cost of the war. That just doesn't happen anymore. World War II happened because the Allies let the Germans live, while exacting tremendous economic punishment on them, leading them to react back powerfully and viciously under their new leader, Hitler.

Yes, we have squandered our fossil energy. We have not used it to better the use of our annual energy alotment from the sun. Unless there is a remarkable discovery soon of how to tap into other sources of energy (dark matter?), coupled with extreme efficiencies of using our metal resources and new uses of carbon-based and thus renewable products (carbon fiber), we simply won't climb back to this level again. But as I pointed out in another post, how much of what we do, as measured in the GDP is really production vs. fixing the mess caused by such production? Where's the true net gain in that?

It's been said that a culture goes mad en masse and comes to its senses one at a time. Perhaps when the dust settles, wiser people will prevail and we can rebuild a true economy that can endure. Otherwise, parity will happen for awhile until enough people can be persuaded to get high on borrowed money again.

Thanks for the links. The counterfeit economic theory that we have been handed has been so worthless that I have not worried much about delving into it further. It will be interesting to see what these links say.

I am told the audio link above doesn't work yet. I don't think the Biophysical Economics Conference website is really fully finished yet. I'll let you know if I find out something further.

There is a thought that I have had related to energy supplies. Some argue that we need to build more nuclear plants - others argue that this isn't needed as we can just build wind instead. Let us consider just the financial differences between building these two forms of electrical generation.

Nuclear is fantastically expensive to build. It requires billions, and you don't get any revenue at all until the reactor and generator is complete. Some utilities are reportedly able to self-finance new reactors - others will require outside financing, and here is where things get tough. I am inclined to speculate that banks are unlikely to finance new reactors, and that the only hope is for governments to become involved and offer financing.

Wind is quite a bit different. The large turbines are large enough and expensive enough that an individual is highly unlikely to be able to finance the construction of a turbine, but still one individual turbine is many orders of magnitude less expensive than a nuclear reactor (while individuals might not be able to afford these things, institutions can - both of our alma maters have installed wind turbines on or near their respective campuses, for example). It is also true of course that an individual turbine generates orders of magnitude less electricity, but in a way you can view a wind farm as modular in the sense that as soon as the first turbine is complete you can start collecting revenue.

Given the much lower costs of an individual turbine, financing is likely to be far easier, and a wind farm can be build piecemeal as quickly or slowly as financing is available.

Enough of these things (both nuclear and wind) have been built that the economics of each are fairly well understood, and predicting the revenue streams should now be relatively straightforward.

How many movies have we all seen where the jist of the plot is...."follow the money"? Take the winter Olympics in BC. It was advanced under the guise of 660 million and they will pay for themselves. We are now at 6 billion and there is no snow! at many of the venues. The people of the province will be stuck paying the bills for decades, while the builders....friends of our right-wing Premier, made the money on infrastructure construction, etc. It is our local version of Haliburton.

Nukes? it is all about finance, money, contracts, 400 dollar hammers.... And now that there are no limitations on campaign finances, it will only get worse. The new Green and energy crisis is just another way to suck out money for the connected. Maybe too cynical, but that is how it seems.

I'm sure Gail would agree that projects like the Olympics are a financial forcasting nightmare. The ability to project a decade into the future is risky in the best of times. I doubt the Olympics as we're used to seeing it will continue for long.

The only way that the Olympics can continue for very much longer is if they give up some sports, and thus some venues, allowing them to shrink considerably in size to more manageable proportions. Specialized venues used for only one or two events, and that are especially expensive to build, would seem to me to be at the top of the list of things to cut. Halfpipe would be a good example - sorry, Shawn!

In other words, we are probably also at Peak Olympics. Games in the future will be much smaller in scale and focused on a smaller set of events. There will probably be fewer athletes competing and fewer nations represented as well.

As I have said, the 21st century will be one long exercise in giving up things, and this is part of it.

...we are probably also at Peak Olympics..."

Nah, not yet, ROFL. If local funds run low, just hallucinate more central-bank dollars (or Euros as the case may be) and throw them at it. You're forgetting the panem et circenses, bread and circuses, that anesthetized urban Rome's very own Great Shiftless Moron Mass during a good portion of the Empire's long catabolic trip downhill. In a long crunch, vacuous entertainment spectacle might once again be among the last things to go.

Great Recession or not, vast throngs still eagerly fork over obscene sums for ESPN, sports tickets, soccer-yob jet flights, and the like, with yesterday's Super Bowl as a fresh example. Even those who make a great histrionic show of strident fury at the "unfairness" of the richness of "the rich" scarcely ever blanch at shoveling money at - guess who - "the rich", if only it will save them from likely failure or embarrassment should they ever attempt to put their doltish little minds to finding something of their own to do on a spare Sunday evening.

In a long crunch, vacuous entertainment spectacle might once again be among the last things to go.

Ha, ha, I'm really curious when the last Formula 1 race season will be run. I'm not too much into racing but I watch F1 like the way passers-by oggle car crashes and ambulances... will F1 be an early casualty of a long emergency, or as you mentioned, will the dictum of panem et circenses rule in this case?

The circuses that draw the most attendance will last the longest. I don't think that F1 is heavy favorite here.

The fly-away races have made F1 a rather guilty pleasure for me. There is no way that F1 can continue with BAU.

On the other hand, the lower boundary of F1 is 'Fastest lap time of any series on any paved road course' and the upper boundary is driver, crew and spectator safety. Just in the 12 or so years I've been following it there have been enormous changes in rules and the addition of many races have been moved or added in places where the money is.

I could see F1 lasting a long time, although it will probably contract to a series of rail travel destinations, on established courses, and renewable fuels.

Peak oil does not imply peak testosterone.

Most importantly, fewer spectators who can afford to do discretionary travel?

I keep wondering how much the Athens Olympics factored into Greece's current financial problems. (I know they had trouble filling the stadiums.) Anyone know?

I love watching the Olympics even though televised sports usually bore me silly. But they do seem like great way for a region to go into massive debt.

I wonder whether the massive debt needed to finance new venues will even be available for future Olympic events.

Or maybe another view is more suitable -- why must all the venues rotate every cycle? Track and field could rotate between 5 cities....skiing the same...ditto water sports. The assets from past events could be reused, and smaller venues would take corresponding lower lodging and transport logistics.

It wouldn't be as fabulous, but still offers the competitive value (you'd rather have contests in the games rather than via wars!).

I think the grandiose Olympics will continue for a very long time (long after other treasured events are killed by the money trail) ... the Olympics (summer, winter, and para) are about national, political, and individual athletic egos and pride - and not so much about market economics at all. If the major international cities of the world give up on competing for them (not that there are any real signs of that), then there are plenty of emerging / developing ones in "the South" who will jump at getting them - and just command the money into place. Same for the Soccer World Cup. They will all keep happening until they really can't. But I agree that major cities should recycle their venues ... but then it wouldn't be "the Olympics" any more, eh?

Seems a pity that Whistler can't provide any snow ... I just paid my cable surcharge to get the whole caboodle ...

There is tons of snow in Whistler. The only snow problems are at Cypress mountain, which hosts arials and moguls.

Completely agree with you about ego and pride. I don't see the Olympics going away any time soon, no matter what they cost.

As I said upthread, hallucinated central-bank funds. Panem et circenses have come first, or close to it, for millennia.

The scale of PV and wind also allows for mass production, as in assembly line manufacturing. Large scale projects are in large part custom built-to-order. However, if the financing isn't there the manufacturing facilities won't get built.

More GA banks failed in the last days of Jan. Many of them had high exposure to the realestate/building bubble. My former employer watched what remained of his highly leveraged empire evaporate on the 31st. This is getting brutal folks. Yet there are still many who insist things will return to normal "because they always do". It seems that there is no room in their little world view for the big picture.

The availability of all the Raw inputs needed aside people are willing to pay $2000 for a plasma TV -enough for about 2KWatts of PV if mass rolled-out. This is just enough to ensure a reasonable standard of living without the thrills and its probably the way the Chinese will go IMO.

I think there will have to be widespread financial collapse before we understand the need for long term thinking wrt energy. A few Kw of PV tucked away is going to be a Godsend in this environment.


A few Kw of PV tucked away is going to be a Godsend in this environment.

Four arrays tracking!


Better get yours while prices are down.

Better get yours while prices are down.

Boy, I'd love to, but that "major debt unwind" thing seems to have started cranking up in the waterplanner household. It's interesting to see Gail's macro analysis happening at the micro level, too. Not exactly fun, but interesting.

Understand, WP. We've been eating a lot of PBJ sandwiches and chicken this winter too. If we had an electric bill we would be struggling to pay it. This was in my mind when I began this project years ago. I've had a sense of things to come for a while and decided to pay some things forward. I wish our society had done more of this.

You need to set up as a bank. Then you can get money at the discount window at 0.5%, and lend it to the US Gov't at 3.59
% (it is going up now; I don't expect that to stop). Use the free interest for purchase of your own solar array. Or give yourself a big bonus! Pat yourself on the back, and send out a press release that you had record profits. Pretty good gig, if you ask me!

Sometimes, when I think about it, it drives me nuts! The banks get money to lend from the Federal Reserve (a private corporation, owned by - the banks). The get it at the discount rate, currently very very low, and loan it at higher rates. The Federal Reserve does NOT have any money to lend them, of course. That is what drives me nuts! They create it... and they don't even have to print it. They just issue - what? a check? to the bank. Then the bank can loan it to a business, a family, or to the US Government. Right now, no one is very credit worthy. Very little private lending is being done. The safe loan is to purchase Treasuries.

So... the US Government needs money. They borrow it from the bank at 3.6%, and the bank gets it from the Fed at 0.5%. Now THIS really drives me crazy!!!! Why doesn't the Government skip the middle man and just go to the discount window????? Gail!!! HELP ME!!! Someone!!!! PLEASE!!!! Am I the only one who absolutely cannot stand this?


This strange system has been thought up to pretend to the public that everything is fine, when it obviously is not.
As the banks are bankrupt, the alternative would be to nationalize all the banks. This would not look good, and all the people in power, who own and make money from the banks, would loose out.
The system is obviously a brilliant form of wealth redistribution, as 99% of the public has not worked it out.

It is organized crime run by criminals for the criminals to enslave the unsuspecting, trusting, fearful masses.
The bad guys what do we do?

Oh, please pass the cheese doodles while I change channel surf..............

No matter how this shakes out it will take effort from a yet to be organized population of the duped, overweight and lazy.

The worthless psychopaths that hold the strings are not very many in number and can't do anything without the complicity of the sheep.
This is the paradox.......they have no power at all except through psychological manipulation.

At this point the rules are for fools and people keep following because they don't have the courage to break from the destructive system into the unknown.
Where are the genetics that led their ancestors to migrate here many years ago??

Glad to see you back Porge.I have entertained some interesting thoughts as to your wherabouts recently ,considering that you are quite our most outspoken firebrand here on TOD who actually knows what he is talking about.

If the average man on the street had even a GLIMMER OF THE REALITIES of our banking system, we would elect apopulist president and congress next election and the banks WOULD BE nationalized;that is if the citizenry didn't just go , en masse, local police included, into riot mode, too far ahead of the election.

We may yet live, some of us, to see an American home grown jihad, target the banking industry.
Understand that I am not actually predicting such a thing, but merely stating that it is POSSIBLE , especially if evolving circumstances favor it.

Circumstances seem to be evolving in that direction.

In the not so distant past, we have had people hot enough to torch fancy oversized cars for environmental reasons.

I can see a defacto coalition of redneck libertarian hillbillies and urban dwellers of all ethnicities stopping high end cars (such as new Cadillac) on the street and inviting the occupants to not only donate thier small valuables to the cause but also enjoy the bonfire of thier vanity-a large car with a full tank of gas will keep a good sized crowd warm and entertained for fifteen minutes or so.

Those who think such a thing cannot happen may have read some history , but if so they didn't COMPREHEND it.

Personally I would much rather enjoy my old age welfare check and continue to buy some out of season produce and burn some small amount of heating oil and gasoline than not.I'm too old to ENJOY a revolution.

Me thinks it is the disappearance (for most) or reduction (for the every poor) of said "old age welfare cheque" that could trigger the bonfire of the Cadillac vanities.

Lets just hope the children (or grandchildren) are young enough to ENJOY the revolution and sentimental enough to keep the fossils supplied.

What type (s) of tracking rack/solar panel do you use?

One of them seems to have a different orientation than the others. Is that a wind turbine in the background?

The panel on the right is in the process of returning to its proper orientation. She's my little "wild child" when there is intermittent cloud cover. The others patiently hold their position while she goes "in search of". I need to adjust the sensitivity pot on the controller. Just haven't done it yet. This doesn't happen often.

Three of the trackers are made from old C-band satellite dish mounts salvaged from the junk pile. I used "uni-strut" for the racks. The one second from the left is a "store bought" Wattsun tracker. My homebuilt trackers have worked just as well (for a third the cost), although in extreme winds they likely wouldn't fair as well (but they're insured). The gizmo in the background is a weather station. It has registered a wind gust of 78mph without damage to the panels/trackers. The panels are fairly well protected in their location. Panels are Kyocera, Siemens and BP. 3600 watts total rating. We also have another small (160 watt) array for water pumping.

Thanks for the info. I've been looking at the Wattsun, as well as a European polar-mount design called Traxle.

I've seen the Traxle in publications. They're supposed to be high quality. That said, be sure you consider parts availability. I've had a few problems with my Wattsun, so parts is an issue. My homebuilt trackers have parts that are readily available around here and the electronics are affordable/repairable, so I keep spares. Tracking can increase output significantly.

The comment I have made before (maybe to you, perhaps to someone else), solar PV on the ground doesn't look very secure. It seems like someone will walk off with it pretty quickly, if electricity is in short supply.

Just keep a couple of pet king cobras under the panels ;-)

I've set up a couple of ground mount systems, I don't think they are any more or less secure than most things on any private property. Normal precautions should suffice. Not everyone would know how to steal them safely anyways.

I know that when I visited Wamsutter's natural gas facility in Wyoming, they had panels on the ground, and mentioned that theft was a problem.

Two natural gas wells plus solar panel at BP's Wamsutter WY Facility

One of the advantages of PV is its usefulness in remote, often unattended locations. As awareness of their value goes up, so do thefts. Thefts from road signs has been a problem for years, but they still use them because these are acceptable losses. My first three panels had frame damage after someone tried to steal them from a "winkomatic" road sign. They still produce full power 18 years after their original installation. People steal cars, your valuables, I even had a friend who had all of the plants stolen from his yard shortly after spending thousands on landscaping. PV panels aren't any different.

David Holmgren talks about building wealth that cannot be stolen easily. Firewood, Community built wind-mills, etc., sound like wealth that will be difficult to steal. It can be "captured" and settled on, though :)

The harder you make it for someone to take the longer you will keep it.

While in general I find a world powered by mirco solar PV unlikely, for other reasons, I still think you are not thinking outside the box enough... you claim that you do this for macro issues, and you do, but for whatever reason you never extend this kind of thinking on the micro level.

Behavior is adapative.

Presented with that problem, theft of micro PV, the simple solution would be too take all the PV for a neighborhood and centralize it in the middle in a co-op. Put a fence around it. Find two or three unemployed twenty year olds. Give them shotguns, rifles, a little cover, an alarm, and a cut of the old electric juice. Problem solved.

Again, the scenario is unlikely, as I think people will adapt in other ways, but the only reason people in Cali put PV on their roofs now is because probably no one is going to steal it.

Presented with that problem, theft of micro PV, the simple solution would be too take all the PV for a neighborhood and centralize it in the middle in a co-op.

I had numerous reasons for considering PV in the beginning. The clincher was the cost of bringing in the grid, over $15k. Back then, PV was more expensive but the money was a good start, and considering PVs modular design I knew we could build up to a larger system over time, and it became a sort of money making hobby (not much, but enough to offset some costs and buy equipment in quantity with others).

I have long been a proponent of the smart micro-grid concept for a while. I used to design power grids and a few of us used to discuss the concept at happy hour (about 25 years ago). Neighborhoods cooperate on projects to create a system that all can benefit from and share costs/responsibilities. Largely automated, these micro-grids are then interconnected via the main grids but can operate independently at some level. Modularization (similar to computer networks). This is something I suggested for Haiti last week. Alas, we don't live in a "neighborhood" as such. We're rural and the nearest homes are @ 1/4 mile away (family).

As for thinking outside the box: there is no box, only clouds, and a few of us seeking clairity.

My point was that when predicting how mitigation efforts might work in the future, you can't just look at the situation today, you must consider llikely future conditions.

For exmaple, people said in the TREV article that you can't use a small car solution to personal transit to replace SUVs because there are too many big cars on the road going too fast... in the future, those conditions will probably recede, and in fact, those conditions are built into the predicament that you are looking for a solution to.

I see the same thing with the argument that reduced oil demand reduces electricity demand, so there is no way fuel growth with electricity. This is a circular argument. At some point, fuel use will be so low that it will not factor into the economy as much as possible growth of new electrical supply (even if that new level is lower than it is now). Once it starts growing again, we return to a growing economy scenario (albeit with a lot of past "wealth" written off), and all that that entails (new debt).

You can't look at mitigations to future scenarios and shoot them down based on current circumstances that are likely to change as part of the scenario.

Sorry I am so longwided. To quote Twain, I would have written a short letter, but I only have time for a long one.

I've thought exactly that so I'm keeping an eye on security systems. This one looks promising:

Come on... you're kidding, right? "Software"? When I was in "Bargain" mode I used to dream about crude electronics and low-powered PCs powering NASA style robots that do our mundane tasks.

But think about the kind of complexity in our society required to support it. The kind of energy and resources required to manufacture and bring to market the components required to maintain a PC that we so take for granted today.

Using computers, cameras and technology sounds unrealistic for the future. In the short run, sure this might work.

A very determined hacker will get what he wants, anyway. But most desperate theft attempts can be easily solved by using community solutions - a couple of dogs and some youth in a co-op setup sounds better.

It seems like someone will walk off with it pretty quickly, if electricity is in short supply.

In our case Gail, they would have to do alot of (steep) walking, get through several fences, get past the dogs, and then there's me. But I understand your concerns. Also, we're about 6 miles from a smallish TVA hydro dam, so I expect there to be some power for the area, though likely rationed WTSHTF.

Precisely why I haven't had the guts to throw away a lot of money into PVs. :)

I'm instead funding (while I can :) ) the research and implementation of an ox-powered water pump which can also double up as a generic shaft to which other stuff can be attached (I'd like to make a crude grain processor and a wood-processing lathe).

I don't think Electricity as an energy transport is the right choice to be made for a 30-years-from-now situation given its dependence on copper, rubber, etc., I don't see it functioning effectively 30 years down the lane. PVs seem even more hinged on "high tech" that I think it will fail splendidly very shortly.

Wind looks very promising and practical for a low discretionary energy future.

Hi Sunson,
I keep reading that aquifer depletion is becoming a big problem in India. Is this a factor in the development of your ox water pump?

Better get yours while prices are down.

I agree. There is an online store, name of Affordable Solar (I think), that sells a starter kit for US$999

It is a single solar panel, about 200watts, and an enphase grid-tie converter, to provide an output of about 175watts AC.

Doesn't sound like much power? Well, it is enough to offset a standard refrigerator during a sunny day :)

...just a thought on how to get started.

You can also get 1.5kW of Kanekas for $1800 ($1.20 a watt) from Sun Electronics. It was a litttle cheaper earlier but I bought a pallet and they are on the level.

PV does lend itself to mass production, but most of that is a high tech process and much of it is done overseas.

A more primitive, but equally reliable technology would be stirling engines. Not elegant, but easy to manufacture (i.e. low tech with recycled materials), and reasonably efficient. Moreover, since they work on temperature differentials, they can be used with heat sources (e.g. mirrors), or cool zones (e.g. oceans, rivers, lakes, the earth).

A more primitive, but equally reliable technology would be stirling engines.

Agreed! I never could quite understand why this didn't fly.

What if one of the petal controllers aimed wrong and started the roof ablaze?
I guess that might be workable but I would bet that insurance premiums would be pretty high.

That talked to a long time convert --- I wrote The Hot Engine Primer back in the 70s to some good reviews when nothing easily accessible was available. Spent a week ago Sunday dinner with a retired commander of a US nuclear sub --- wasn't aware of his background till later so never got his opinion on Sweden's sub fleet that are Stirling powered.

ericy -

I fully agree with the points you make re wind vs nuclear regarding financial obstacles.

Whereas nukes are entirely an all-or-nothing proposition (you can't build half a nuclear reactor), wind power lends itself quite nicely to modularization, as even large wind turbines only come in 3 to 5 MW units. So, if you want 60 MW, you install 20 3-MW turbine; if you want 120 MW, you install 40; etc. etc. And as such, the financing of wind power doesn't have to be in a single multi billion-dollar chunk, but rather can be applied in smaller increments as the wind project is completed in phases.

This says to me that in times of economic stress and decreasing availability of credit, wind power might be a far more doable thing than nuclear power. Of course, as long as natural gas is still cheap and abundant, in terms of capital cost per unit of generating capacity nothing can compete with a combined-cycle gas turbine power plant. How long natural gas will be cheap and abundant is the key question, isn't it? But for now the utilities don't seem to care all that much, because they can pass on most of the fuel price increases to the consumer.

As most home heating (in the US at least) is by natural gas, I think a strong argument could be made that we should conserve our natural gas reserves for that specific purpose and not get carried away with adding more gas-fired power plants, because once the natural gas becomes too expensive and/or in short supply, how are we going to heat our homes? Go back to coal furnaces? Now that would do wonders for urban air quality, wouldn't it.

"you can't build half a nuclear reactor"

I beg to differ with you. There are three half built reactors in Richland Washington. See the WPPS fiasco. They had three reactors half built and went broke. The AAA bonds went to near zero and thousands of people lost large shares of their retirements. The whole thing was mismanaged and the government kept changing the requirements. A friend worked in the same room for three years on one reactor as a pipefitter while the engineers changed the pipe plans six or seven times. When the whole thing came down due to cost overruns, there was no one to blame because no one was responsible. Designed and built by committee!

Lynford -

Indeed the WPPS (aka Whoops!) ranks right up there with some of the biggest and worst fiascos of all time. A perfect example of something so big and with so much inertia that once it got rolling, no one was willing or able to stop it ...... until it finally stopped itself by crashing.

It's a good example of why one should never make the assumption that there is someone in control and making sure things don't screw up. Very often no one is in control.

So, if you want 60 MW, you install 20 3-MW turbine; if you want 120 MW, you install 40; etc. etc.

You have to allow for the intermittency of the wind. With that in mind, you need to install something like three times the "nameplate" capacity of the turbines to achieve an average given result. Thus, if you want 60 MW, you install 60 3-MW turbines, not 20. If you want to displace one (average-sized) 600 MW coal power plant, you install 1800 3-MW turbines.

P. Coyle -

I'm aware of that, and was speaking in terms or nameplate capacity, not average output. That factor is about three to one, as you pointed out. Maybe a little less if you're talking about a good offshore location.

But please keep in mind, as long as wind power remains only a relatively small fraction of the grid to which it is connected into, it doesn't have to be installed at three times the nameplate capacity, because the entire system is not relying solely on the wind power component and other portions of the grid can compensate when the wind is low.

Whereas nukes are entirely an all-or-nothing proposition (you can't build half a nuclear reactor)...

Certainly today's nukes only come in very large individual chunks. OTOH, all of the national labs with nuclear reactor programs have done at least preliminary design for small modular reactors (generally in the range of 50-150 MWe output). Several operate at standard pressure, so can be considerably smaller and lighter. Most have passive fail-safe features. Some are small enough to be manufactured and tested in a factory setting, then moved to the final site. Some have higher burn-up rates and produce significantly less waste. Some run on thorium fuel cycles. Some can run on essentially any of the possible fuel cycles.

Most other countries have realized significant savings on nuke construction by standardizing on one or at least a small number of designs. It would be interesting to know what the costs are for a modular reactor designed to be inexpensive to produce and with a guaranteed market of at least 20-30 units/year.

Of course the reason that nukes are specified to be as large as they are is to take advantage of "scale". When you are building an extraordinarily complex pump, for exampe, it doesn't cost as much double its size as it does to make two pumps. Nuclear plants have always been on the large end of power plant sizing for just that reason. So making modular plants reverses that logic. It may take a lot of standardization and mass production to overcome that situation. Then the capital issue becomes one of building the manufactruing plants and commiting to large numbers of small plants to attain the benefit. Catch-22

Several things make nuclear power expensive. PWRs, (Pressurized Water Reactor), are derived from the designs Rickover developed in the 50s to power navel ships. Water for both the primary and steam side was picked to reduce development risk, a good choice at the time. Scaleability of these plants is not good on the down side. Another problem for reactors in the US is the fact that the government regulatory fees are about $4 million per year per reactor. This alone would more than double the operating cost for a 10 MWe reactor.

New reactor designs such as LFTRs, (Liquid Fluoride Thorium Reactor) can scale to about 10 MWe efficiently, and need far less in the way of “Safety” systems. Combined with reduced regulatory fees this would allow LFTRs to replace virtually all coal and gas fired power plants.

When you are building an extraordinarily complex pump, for exampe, it doesn't cost as much double its size as it does to make two pumps.... It may take a lot of standardization and mass production to overcome that situation.

Absolutely true. But if starting from scratch, one of the first questions would undoubtedly be, how can I get rid of things like extraordinarily complex pumps? There are a large number of designs being looked at. Barring total global economic collapse, it seems likely to me that at least one of Japan, China, Russia, Korea, or India will commercialize such a design. At least some of them -- and China in particular -- can guarantee a sufficient domestic demand to justify construction of the first factory.

Personally, I think Japan will be the most interesting case to watch. They import >85% of their energy, and the figure would be higher except that they get credit for large amounts of plutonium "manufactured" in their existing reactors. IIRC, they have a total of over 50 tons of plutonium that has already been separated from spent fuel, and over 100 tons of plutonium in spent fuel that has not been processed yet. Some of the modular designs could burn that and produce large amounts of electricity. Most of the modular designs would seem to be much more earthquake-resistant than a conventional nuke plant (in the sense of greatly reduced chances of a release of radioactive material).

I think the problem is that wind, per kWh generated, is quite a bit more expensive than nuclear, and certainly than coal. Furthermore, the electricity you get is variable in output, and needs a lot of transmission upgrades to useful.

While the $ amount for each individual turbine is less, when you add all the costs, it is really a very expensive energy source. Dennis Meadows of Limits to Growth fame says that capital limits are what are likely to bring our current system to an end.

I am not convinced that we can afford either nuclear or wind at this time. With the recession, electricity demand is going down. I think there is a good possibility that electricity demand will continue decline further, as debt unwinds. Trying to pay for new capacity when we really are not in need of new capacity, is doubly difficult. Maybe we should be concentrating on other mitigations, and just let electrical output decline with recession.

If your big concern is CO2, I expect this will decline pretty quickly even if wind or nuclear are not added, because of continuing increasing recession. In fact, I could make a case that adding wind or nuclear will increase CO2 concentrations. Adding wind and nuclear will use fossil fuel in their construction, so the short run impact of building new wind or nuclear capacity is likely to be an increase in CO2.

Our knowledge about the long term savings of CO2 from wind and nuclear is not very great. All the calculations we see about hoped-for long term savings are based on assumptions of the new wind or nuclear capacity being useful for 40 or 50 years. But if other issues (such as decline in globalization) cause problems that prevent these from being used during their full productive life (for example, inability to maintain transmission lines), the future CO2 savings may be illusory.

...adding wind or nuclear will increase CO2 concentrations.

and not just for the reason you cited. As this fellow, formerly of the Nuclear Regulatory Commission points out:

But it's even more problematic than that. If you look back at what happened, say, in New England with the Seabrook nuclear plant, as companies try to build these very expensive units and got into trouble they cut way back on their efforts at energy efficiency at other sources--such as even their own natural gas divisions -- in order to both husband the resources to finish the plants and in order to make sure that demand was there for the kilowatt hours at the end of the day. So, we know that nuclear power has that ability to displace interests in other resources when it gets into trouble.

Gail -

We've been down this same road several times before. But I don't mind doing it again:

Yes, the capital cost of wind power is much more than the capital cost of a coal or gas-fired power plant. However, wind power consumes virtually zero fossil fuel, and that is the whole point. If we had an unlimited supply of fossil fuel, no one in his right mind would even consider wind power. But of course, we don't.

So, if one thinks we don't have an impending fossil fuel supply problem, then one would also automatically believe that we shouldn't bother with wind power. This appears to be your view. But if one believes that we do and that it could take well over a generation to mitigate, then one would want to start nibbling away at the problem, bite by bite. That is my view, and that's where I think things like wind power, solar, and nuclear need to come in.

You also appear to have this belief that the global recession will solve the fossil fuel problem by reducing demand. However, I would maintain that once most of the 'fat' is sweated out of the fossil fuel demand structure by economic hardship, then what remains is a largely irreducible fossil fuel demand for essential uses, such as home heating, travel to and from work (such as it is), manufacturing of essential goods, and essential public-sector services, i.e., police, fire departments, and (arguably) the military. There is some minimum level of energy consumption that a modern civilized society requires in order for it to remain a modern civilized society.

And once more, this notion that the manufacture and erection of wind turbines consumes huge amounts of fossil fuel is demonstrably incorrect. The energy payback period is quite short, regardless of how one measures it. Accordingly, the CO2 generated from putting wind power in place can also be quite easily shown to be but a tiny fraction of the CO2 that would have been burned over the operating life of an equivalent coal-fired power plant, even using worst-case assumptions. Go through the numbers. So, I think this CO2 issue you are attempting to raise is entirely bogus.

I don't want to put words in your mouth, but let me try to understand the subtext of what you are saying: 'electrical demand will continue to fall, so let us not invest in non-fossil fuel alternatives such as wind, solar, or nuclear. Therefore we should continue with fossil fuel generated power until the fossil fuel runs out and our entire civilization collapses, at which point we won't need to worry about either fossil fuel or alternative power.' Am I close?

I think we are reaching limits to growth because of peak oil and because of many other limits. It seems to me that building more nuclear and wind is an attempt to keep BAU a while longer, while justifying our efforts based on CO2 saved. I don't think the effort to keep BAU going is going to work--so the huge expenditures in this direction are pointless.

It is hard to see that anything we build now is going to have an operating life of 30, 40, or 50 years, so making calculations as it they are is more than a bit optimistic. It seems to me we would be better looking at models in 5 year increments--how much CO2 will be generated by a particular combination of construction and fuel use in 2011 to 2015; 2016 to 2020; 2021 to 2025; etc. We should apply a very high "discount rate" to any savings out in later periods, because they likely won't exist.

Gail -

For me, CO2 reduction is not the key issue, but rather I see it as an added bonus of non-fossil fuel power generation.

I don't understand why you find it 'hard to see that anything we build now is going to have an operating life of 30, 40, or 50 years'. Many coal-fired power plants that were built in the 1950s are still operating. With proper operation, diligent maintenance, and the scheduled replacement of key components, there is no reason why a nuke or wind farm cannot have an operating life of well over 30 years and perhaps a lot longer. That is, unless your view of the future is even more pessimistic than mine. Yes, if things are totally hopeless and there is a total collapse and we find ourselves in a Mad Max world, then it doesn't matter what you do (even bothering posting things with this web site). As for me, I think the future will be difficult and grim but not apocalyptic.

I don't view wind, solar, and nuclear as a delusional way of keeping BAU, but rather as a means to supply a significant fraction of the minimum amount of electrical energy that a society depends on when the fossil fuel starts running out and/or gets prohibitively expensive. If indeed there will be a trend toward plug-in hybrids and all-electric vehicles, then electrical demand might not drop as much as one might suppose. However, that is difficult to predict.

And even if we use your basis of 5-year increments, I would posit that regarding coal vs wind, you would be probably still be ahead with wind in both energy invested and CO2 generation well within the first 5-year increment. Of course, if you shut down a new wind farm after only 5 years, you would be killed financially, but that is also true of a new fossil fuel power plant. So that consideration appears largely to be a wash.

Speaking of which, many of the older coal-fired power plants have been given quite a bit of leeway and lengthy extensions with regard to air emission requirements. But these are running out. It can be enormously expensive to retrofit air pollution control systems for some of these old plants. As such, utilities sometimes decide to decommission the plant rather than waste good capital on upgrading something that is already quite old. A good example of this is NRG, which is shutting down an older coal-fired plant in southern Delaware and will be making up for the lost power from other sources on the grid, including an offshore wind farm to be built off the Delaware coast by Blue Water Wind, which was recently acquired by NRG.

As a nation the US habitually makes bad 'investments' of monstrous proportions. Diverting just a few months worth of Iraq/Afghanistan expenditures to wind/solar/nuclear would not cost us any more than it already is costing us, and would at least give us something useful to show for it. As long as there is a defense/national security budget upwards of one trillion dollars, I have a hard time swallowing the notion that the US cannot 'afford' to build out alternative energy at some modest but significant rate. It gets down to priorities.

Because of their simplicity relative to other mechanical sources of electrical generation, wind is robust and should have a long life. I've read about old Jacobs units that have been in use since the '30s. One in Kansas has been in continuous use for over 70 years with regular maintenance (brushes, lube, etc), with one major refurb in the '70s. Newer wind turbines, with modern materials and technology should last at least as long. They are no more complex than a hydro plant, and because of their modular/distributed nature, with regular maintenance, their lifespan could be indefinite. As I've posted before, when smaller units have a problem, they often just swap in a new unit and take the problem unit back to the shop. The larger units are maintained on site.

A lot of the old stuff used to be very durable because it was very overbuilt - think the Brooklyn Bridge, built in the horse-and-buggy days, carrying modern traffic. I don't know how much margin is built into the mechanicals of modern wind turbines - can we say they will be so durable?

Wind turbines have far fewer moving parts than other systems, even than older wind generators. I just don't think their durability is a big issue.

Maybe, but every now and then I drive past this wind farm in north-central Illinois and it seems like around a third of them are always out of service, in any season. At best that's a strange way to do business.

That's because they start and stop according to the needs of the grid, just like hydro, natgas, etc. The hydro damn I live near doesn't generate all of the time even when the reservoir is full. You don't know jack about power grids, do you Paul?

I think in Texas what they are doing now, instead of taking unneeded wind off-line, is the wind suppliers are paying a charge at times wind is not needed, instead of being paid for the electricity when it is not supplied.

My guess is that PaulS is right. Most of the wind turbines are in need of repairs, although some might be in locations where it is not particularly windy. Wind turbine downtime is a big problem. This is a recent article about it. This is a link to a presentation from Delft University about Wind turbine reliability, plus some slides I cut out of the presentation. (Click for larger images).

The thing that astounds me is that this analysis seems to be talking about more than one failure per year per turbine on recently-built turbines. Failures were much worse than this back in when a 1987 study was done--perhaps as many as 15 failures per year per turbine. I hope someone can tell me I am interpreting the scale wrong. But the conclusion is clearly written in terms of failures per turbine per year (not percentage of turbines failing in a year). The annual downtime percentage seems to be in the 2% to 3% range, so most of these failures would seem to get corrected pretty quickly.

As one might expect, early and late failures predominate.

There are a whole group of causes of wind turbine failure.

These are the sources that have caused the most downtime. Gearbox is #1. Grid or electrical system is close behind.

The above image seems to be at least one source of the familiar statement that turbine reliability is getting better over time. I would argue that the trend line fitted is bogus. Clearly, the one very old wind reliability study called EPRI, USA from August 1987 had horrible reliability--perhaps 15 failures per turbine per year. (Failures are on a log scale)

But fitting a linear trend line through that point going forward is silliness. Look at the trends for groups of individual dots by type, in more recent years. The trend is at most down a little; nothing like that suggested by the fitted trend line.

I find this graph more disconcerting. It shows (and some of the other slides comment) that reliability decreases with the size of the turbine. This is not a good sign. Hopefully, there were some distortions in the study--maybe a disproportionate share of the large ones were in their shakeout period.

The report concludes:

-Unreliability > 1 failure/year/turbine is common.
-Unreliability is higher for larger turbines
-Such unreliability will be unacceptable offshore. We need reliability <0.5 failure/year/ turbine.
-Unreliability concentrated mainly in the Drive Train
-Some unreliable subassemblies are surprising:
--For example gearboxes are not unreliable
--But gearbox failures do cause large downtime and costs
--But electrical parts are unreliable
--And cause relatively little downtime but large costs

Hi Gail,
Just spoke with a former employer who has been a consultant for AWEA and deeply involved in wind energy. He says we are both right. Reliability has been an issue as turbines have been scaled up, usually due to drive assembly issues (reduction gears have been redesigned to save weight). Also, generator components called "stacks" have been redesigned to provide more power over a greater range of wind speeds. Some have been deployed that weren't "ready for prime time yet". One explanation of "stacks" here:

He described these issues as very solvable "growing pains", often occuring after North American manufactureres have been sold overseas.

He says I'm right in that often a group of turbines will be idled due to "grid economics", off peak demand, etc. Just because a wind energy producer has power available doesn't mean utilities have to buy it. If they can't sell all of the power they are producing then they have no choice but to idle a percentage of their capacity. Some one else posted that wind farms are overbuilt to compensate for times of lower wind speeds. He said that in some areas this is true, that it depends on sighting factors, and design economics.

He wants to send me some data but needs to check if it is legal for it to be posted here. Maybe I can convince him to write a post, if his contracts will allow it (his primary concern).

Well, just anecdotal here, but a couple weeks ago my wife and I drove through a wind farm in Wyoming County, NY. There was a fairly steady wind, and all 20 or so large windmills we saw were spinning at approximately the same rate. A truly graceful, beautiful sight to behold. Somebody's doing something right.

"He says we are both right." So there was no need to be rude and snide, was there?

I would be interested in a guest post on this subject, from someone who really knows about the subject. He can do it anonymously if he would like. Have him write to me at GailTverberg at comcast dot net.

Link to the presentation seems to be missing?

I think I fixed the link. (It downloads from the link.)

I think the problem is that wind turbines are part of a networked electrical system. You do have the maintenance issue on the turbines, but you also have the issue of maintaining the transmission lines (including transformers) and the back-up gas fired system. The electric power company needs not to go bankrupt (or alternatively, to get bailed out by a government agency with adequate funds). The workers for the system all need to get to work, somehow. Replacement part (like transformers) have to be imported from their overseas manufacturers, and the manufacturers have to buy all of the raw materials from their suppliers from around the world.

Maybe this system will all work for the 40 or 50 years envisioned in the calculations of wind feasibility, but I would not count on it.

I think that renewable energy sources like wind and solar are best applied at the smaller end of the scale, with distributed generation and limited storage at the household or neighborhood level, serving only the most essential needs, independently of the grid power supply.

It's futile to insist that renewables be scaled up to feed the grid as a direct replacement for depleting fossil and nuclear fuels. In all but a very few locations, the energy density is just not there on a reliable and predictable daily basis, and high-level storage is generally impractical.

One of the realities we're eventually going to have to accept is that our present rate of energy consumption is not sustainable into the future. A some point we're going to have to scale back our use of electricity to whatever the renewables can sustain. If that means 5 or 10 percent of our present power consumption, then so be it.

We will have to concentrate on the old idea of "negawatts", not megawatts. Conservation, efficiency and low-tech alternatives. What you don't need , you don't have to generate.

Hi Joule.

Diverting just a few months worth of Iraq/Afghanistan expenditures to wind/solar/nuclear

This is a hot topic of conversation with my bike buddies in the coffee shop. Clearly, the war money could have addressed many of the problems identified by TOD folks. Arguably, these wars are misguided. Totally uncertain is how the US will use it's military power in the future. Why is there no rational national policy regarding these facts?

What is the underlying national psychology that allows our elected leaders to feed the "military industrial complex" at the expense of our true security issues (PO/GW/etc)?

Given that TPTB will use lobbyists to corrupt politicians, but this only works to a point. Why do US citizens permit this behaviour? What is our national mentality that allows such obvious scare tactics to cloud our ability to reason? Why do we let corporations control our destiny when we generally realize that these corporations are non-human entities that seek only to maximize short term profits? What is it about us that lets this happen? Why are we unable to perform simple math (decline rates, CO2 ppm, etc) and come to obvious conclusions? Why do we allow car commercials and bogus oil company ads to play on TV 24 hours a day? What is wrong with us?

Great questions!

My conclusion is that humans are dumber than yeast! ;-)

My conclusion is that they are more corrupt than yeast! ;)

Hi FMagyar & porge,

So why has one of the crowning achievements of the evolutionary process become so dumb and corrupt? Perhaps because the critical thinking skills of most people have been significantly eroded by a process whereby a much smaller group of people have gained a degree of power and control that would not have existed for most of our pre-agricultural history.

It would seem reasonable that hunter-gatherers would need lots of brain power and keen skills of observation and sound reasoning to avoid predators, find and kill game, contend with hostile environment, etc. I suspect that many people today could not survive if given a comparable level of challenges in daily life (even if adjusted for contemporary conditions).

Agriculture created an environment where a few really smart guys could dominate lots of other folks. One very handy tool was the pseudo-science of mythology that became religion as we know it today. Today we have popes and TV evangelists to keep the myths going. And, unwitting parents indoctrinate their offspring with the virus of "faith" at the same time these kids are learning language. The result is widespread "belief" that it is "true" that we will live on in a supernatural world after we die. It is also widely accepted that there are some rules to follow if you want a good seat in the bleachers of Valhalla (or whatever). Of course, it is the smart guys who lay down the rules - much more efficient than chopping off the heads of people who disagree with you.

Of course there is no Valhalla, or heaven, or any other such nonsense. But, the side effect of this nonsense is the existence of billions of humans that are totally unable to discern what is "true" or not true. They have all been mentally crippled by power hunger guys who figured out how to use the religion thing to their benefit.

As long as vast numbers of people have no basis for determining what is true - have no real critical thinking skills, then there is little likelihood that technical concepts such as PO/GW can be widely understood and acted upon.

Gail, Mac and others here on TOD believe that religion will provide some kind of useful framework for when life gets difficult here in the US. I submit that this position makes the problem worse. It is hard for me to understand how perpetuating myths such as an afterlife belief can lead to an understanding that our real "salvation" is to preserve the planet as a suitable place for our species in the future - versus some personal greedy concept about avoiding eternity in the fires of "hell" and securing a preferential seat of an eternity of "glory" with the "almighty". In other words: "Heck with the planet - my salvation and eternal reward is a lot more important to me."

Until churches are turned into community centers, it is hard to see how we prove we are smarter than yeast.

With the recession, electricity demand is going down. I think there is a good possibility that electricity demand will continue decline further, as debt unwinds.

I agree with the logic of almost everything in the OP, but I think the argument falls down here.

At some point, I really think that this trend will slow and reverse... that might take a while. I just do not believe that we need liquid fuel in anything near the quantities that we use today to run an technological civilization. The problem, as you know, is that our civilization has infrastructure that IS geared to this amount of liquid fuel.

But at some point, reduced demand will do its job and people and industry will start at a new much lower level of fuel use and then use electricity for growth. I don't see the fall in elecrical use being permanent for this reason... at some point we will have so little fuel that it will no longer be as important to the economy as new electrical capacity/use. The oil sands, hydrogen, ammonia, nat gas, declining oil, etc will be enough to satisfy mandatory fuel needs, such as ag, construction, limited transportation outside of urban centers, trollying goods to rail, etc. Electricity really can do the rest.

To me, it's not a matter of "Will we switch to electricity?" It's a matter of when will we have to.

I know I repeat this to most of your threads, but it really is where the argument falls down. Society can adapt to lower fuel use, it just takes time. To boil it down: It's easier to cut back on non-necessities instead of oil if the oil reduction is temporary like in the 70's, but people will adapt over the long haul. I don't think is even necessarily requires sustained oil prices (though that would help) but eventually deflationary pressure will have the same effect.

Also, I would like to point out that oil prices ARE still high. They are off their peak, but they are still historically high, even in a deep recession.

Hi Gail,

I am not convinced that this is a real issue. France made the transition to nuclear power and has had several decades of very low CO2 emissions.

I think you would have a hard time making a convincing argument that CO2 emissions would be lower in France if they had stuck to coal, oil, natural gas, etc.

Bottom line is that we really don't have a choice. Solar and wind together may get you to 25% of US power, but that stills 75% ...

You're missing the point. Nuclear powers generate more power per dollar invested.

It is actually wind power that is more capital intensive.

Wind power's lower operating costs are swamped by their poor payback on capital invested.

I agree. This is a function of ENERGY DENSITY. One handful of fissionable material will equal a human lifetime of energy consumption. Core power density in a molten salt reactor can exceed 1 MW per L and it is CONTINUOUS and can automatically load-follow. Nothing can touch nuclear for energy produced per pound of fuel utilized nor power per unit volume of machinery, which means resources required to manufacture. NOTHING. Why is this so hard to grasp? The implications this has for environmental footprint per unit energy produced and per unit power output are obvious, and nuclear is orders-of-magnitude ahead of anything else in this regard. I'm stunned that people can't seem to GET IT. Factory-mass production of modular reactors with passive safety, operating at atmospheric pressure with underground siting, you could SLASH the unit cost, the amount of capital at risk, and the time from digging a hole in the ground to getting power flowing. There IS a way forward, but everyone is so convinced that the only way nuclear can be done is the way it was done 30 years ago, with designs dating back 40 years or more and a regulatory environment that tilts the playing-field 45 degrees against it, hence it is impossible. What a load of garbage. If we want a way forward, it is advanced nuclear in smaller packages to reduce capital risk and increase the resiliency of resulting energy networks (much less at risk of a small reactor project having troubles vs. one HUGE plant running into trouble due to litigation, changes in licensing in midstream, or whatever), to increase the speed of climbing the "learning curve" in mass production (it is faster to refine manufacturing methods of small reactors, given fast serial production, than to refine the manufacture of plants that take 5 years each). New approaches to nuclear is the elephant in the room that almost everyone refuses to see, but the only thing that can save industrial civilization without burning the planet to a crisp.

Nuclear power is by nature a long term commitment. Once in operation, you can't just turn it off like other power sources. Yes, you can bring its energy level down and "control" it, but the core and expended fuel have to be managed for years/decades/centuries. You can just walk away from a wind farm. Not so with nuclear. It's not the technology I don't trust. It's us, and our commitment/ability to manage it's consequences over time. Failure to do that is catastrophic, and to this point I would give humans a grade of maybe a C on this. We need to do better than that before we commit to nuclear in a big way. We begin by putting out the fires we've already started. If many on TOD are correct, there won't be anybody managing the hell holes.

You can't just turn me off
....and walk away!

All that sounds excellent Steve - but how do you deal with all the toxic waste product of all these modular (smaller) reactors?

I intended to mention that as well. Nuclear plants generate more power per dollar invested, and it is there 24/7, so it is easy to plan around. Offshore wind is especially expensive (but is often close to users).

I do remember reading the original post and looking back through it some of the predictions where spookily accurate. Thankfully due to my 'fear factor' and reading stuff like this I stayed in Gold throughout 2008 and as a result was up 20%...

Isn't the fundamental problem one of the widespread Global application of Keynes Theory as a BAU remedy. I'd like to propose that since Keynes theory was created and applied during a period of increasing underlying net energy inputs his theory is as yet untested during decline and its failure will turn out be the Macro-Economic 'Black Swan' of the early 21st Century.

"Keynesian economics (pronounced /ˈkeɪnziən/, also called Keynesianism and Keynesian Theory) is a macroeconomic theory based on the ideas of 20th-century British economist John Maynard Keynes. Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle."
-Here's a man who lived from 1883-1946, probably one of the most turbulant time to be alive. Starting out around the time of Sherlock Holmes, whale oil and gas-light, managing to squeeze in both the 1st and 2nd World Wars along with the transition to electrical industry, the domination of oil and the atom bomb. Is it any wonder he sought a mechanism he believed would bring increased stability to the World?)

1. Put another way his theory states that you can take away some of the pain of any present situation by government meddling, this takes the form of 'borrowing from future wealth'... (You are 'borrowing from future wealth' via the mechanisms of Debt (in the cases of lower interest rates or more government borrowing/spending) and Inflation (in the case of a currency Devaluation).

Now, here's the sticky bit IMO:

2. This theory only works if the future is better than the present since it's only in a better future that this borrowing burdon can be paid off...

-But that's OK because throughout his life and ours -in fact throughout the timeframe of his entire theory the future always was better and so it has always worked out fine. Economists rule OK!

But going back to the article and consider if/when decline sets in. The first bullet Governments would fire at the problem would be the usual Keynsian stimulus package -it worked before so it should work again right? The result would be a massive overhang of Government debt and little or no impact on the future growth rate -indeed the growth rate would continue to decline even in the face of ever increasing debt/'stimulus', at this point the theory would be seen to be failing, panick would ensue, Economists would be throwing themselves out of tall buildings in despair... Could Keynes really have got it all wrong?!!

I think readers of TOD are well aware of what could cause this underlying asset base to shrink How would this look as decline progressed?

The cost of the underlying raw inputs would start to increase (equivalent to saying that their fraction of total available wealth would start to increase) Since the "Grandady Input" to raw materials is Energy when the underlying cost of Energy starts to rise so will all other raw inputs. This is compounded by the fact we have used increasingly larger quantities of cheap energy to get at lower and lower ore grades thus offsetting one decline with an increase in another ( Production = Energy x OreGrade ).

By my calculations we reached "Peak Energy Cheapness" around 1998/9. Ever since then Energy has got more and more expensive. This corresponds to a decade in which we have seen ever increasing government debt, cheap money leading to asset bubbles/bad debt and a resulting financial 'disaster' that almost caused another Great Depression...

Here's IMO how things will pan out in the decades ahead if we continue BAU with this theory;

Energy will continue to get more and more expensive (happening)
This will push up the price of raw materials (happening)
Personal debt levels will soar (happened)
Government debt levels will soar (happened)
The increased input costs will cause downturns in the business cycle -stimulus will be applied until it can no longer be applied on fear of Government default (seeing some of this; Iceland, Greece, UK, US...)
The business cycles themselves will shorten as any rebound in activity due to stimulus will quickly drive input costs through the roof since supply will be declining...
The injections of cash and stimulus and the Inflation this causes will cause the unit value of money to decrease rapidly and this will start a vicious downward spiral of increasing costs and decreasing net wealth...
The number of defaults on lending will rise and the ability to access debt will be reduced or become very expensive.
Ultimatley money will be so devalued and wealth so reduced that economic activity will not respond to any stimulus -people will simply not have the ability to take on new debt even if it is available.
["Doomster Talk"] Governments themselves will be bankrupted, HyperInflation will ensue and globalisation will collapse. The failure of free market access to resources will result in resource wars ("obtain at any expense" or die) and mass starvation.

-So, within a reasonably short space of time (20 years?) the whole global economy will grind to a halt, the financial system will lay in ruins and the meaning of wealth will return to what it used to mean -namely access to raw materials, land and the means to provide for the most basic of human requirements and survival...

-Of course I could be wrong...

Regards, Nick.

I'm not saying you are wrong, but at some point something else will happen. No trend lasts forever.

Of course if I had been in charge, I would also have started a massive Keynesian reinflation of the economy, but spent all the money on relocalised renewable energy infrastructure. I would tell everybody that this is the key to returning to BAU exponential growth, in the full knowledge that it was bound to fail and lead to economic and government collapse.

At least the collapse back to sustainable consumption levels would not have to be so far.

The whole problem with Keynesian economics in particular, and modern macroeconomics in general, is that they think of national economies only in terms of an income statement, with no reference to a national balance sheet. Run a business that way and you'll go bankrupt; it should be little surprise that the same thing is happening to national economies everywhere.

Much work needs to be done on developing a macroeconomics that takes proper account of national balance sheets as well as income statements, particularly during periods of protracted decline as well as growth and stability. Nevertheless, I believe that a few generalities could be stated at the outset, things which are intuitively self-evident:

- In a declining economy, "living within your means" becomes hugely important. Since there quite possibly will be less income tomorrow than there is today, "living below your means" is actually advisable. This applies at all levels and to all sectors of the economy: households, corporations, and governments.

-"Living within your means" implies no deficit spending at any level. Everyone and every entity needs to have a realistic budget that is balanced, and the discipline to live within it.

-"Living within your means" implies that debt is something to be avoided at all cost. Paying off debt as quickly as possible is a priority. Defaults will happen, but are inevitably a lose-lose proposition for everyone; unwinding debts and deleveraging in a manner that minimizes defaults should be a public priority.

- "Living within your means" also implies that nations will pay for their imports with exports, and cannot afford to run big trade deficits.

- For declining economies, efficiency and the minimization of waste become a high priority. As financial and other resources are likely to decrease and be at a premium in the future, conserving resources of all types and making the most of them becomes hugely important. The maintenance and preservation of assets of all types becomes a very high priority, and indeed must become a societal ethic.

- In declining economies, a dollar in the future might very well be worth a whole lot more than a dollar is today; the whole idea and system of time value of money discounting might be turned on its head. At the same time, a declining economy might very well be a riskier economy, so risk premiums might loom considerably larger than they do in growing economies.

- In declining economies, the natural tendency of monetary values is deflation. While governments will be tempted to inflate their money supplies to counteract that, this is a temptation that must be resisted; such inflation will only serve to obscure the true state of the economy and will send false market signals, resulting in misallocations and sub-optimal economic decisions that will result in waste that the economy can ill-afford.

- A debt-adverse economy will necessarilly also be one where there is little credit available to fund investments. Investment will largely have to be on a self-funding, pay-as-you-go basis. Investment decisions will have to be made much more carefully, and only those investments that promise a high rate of return with low risk will make the cut. Nevertheless, investments that preserve the value of assets and convert them from something that is here today and gone tomorrow into something that provides a steady return long into the future will be very desirable.

- As for energy, a declining economy will place a premium on using energy efficiently and minimally, and on conserving depleting non-renewable resources for as long as possible. Investment in renewables might make sense, but only by investing in those renewables with the shortest payback periods first, and then gradually working progressively up the ladder. A declining economy cannot afford to tie up scarce capital in long-payback (or especially negatve-payback) projects when it could be employed instead in shorter-payback projects.

Keynes was a pragmatist, he wasn't just a deficit spending advocate which many here like to accuse him of. During the war his control of the British economy saved Britain millions of pounds and saved the country from runaway inflation with his novel, taxation policy of postwar credits as happened in many countries after the first world war. Under Keynes's tutulage Britain paid for over 50% of our war from income. If the powers that be had followed his advocacy of the Banco at the Breton Woods meeting. America and the world would not be in the financial mess we are in at the moment. His death shortly afterwards was a tragedy, especially to my country. His economics were certainly not faith based. People would do well to objectively reappraise his works and his work in Government and he would not be castigated and cast in the roll of Bogey man because the politicians only applied one side, of his theory, and you need someone to blame His General theory was only a work in progress.

A little like blaming Einstein for the atom bomb because he stated E=MC squared...


Blame doesn't enter into it. Yes, he was a genius who helped enlighten our understanding of the reality in which we live. Yes, he also provided key insight which led to the development of nuclear weapons. Yes, the theory of relativity is not the only multi-edged sabre.

Cars: lifestyle, the economy, easy motoring, suburbia, drunk drivers. Computers: number-crunching, communication, the Internet, porn sites, increased energy use, viruses, easy proliferation of hate speech, record keeping for Nazi concentration camps. Fire: light, heat, ICE, char-broiled steak, cigarettes, flame throwers, human-caused forest fires, climate change.

Technology lies anywhere on the messiah / antichrist spectrum, depending on who wields it and who watches.

Uggh. How many times will this topic be sliced and diced on TOD with nothing new and no data?

What % of private debt could reasonably be replaced by government debt without upsetting the applecart is the relevant question as thats whats going to continue to occur. (I think USA debt is roughly at 57% govt/43% private now).

What is the greatest debt a nation has ever held without eventually defaulting, and instead regaining control and paying it off?

Shifting debt is part shell game and part power grab. I see no reason to believe that total debt can increase significantly further in real-dollar terms.

Thanks Gail for a very cogent explanation.

Here are some graphs and numbers to demonstrate the whole process in action. First, there is an incredible amount of debt, far more than the planet has resources to support. In other words we are in "debt overshoot." Note: I replaced the earth at the base of the pyramid below with oil barrels. The original graphic can be found at The numbers come from various sources, including the Bank for International Settlements.

As asset values go down the debt stays behind:

Tax revenues plummet and every level government has to shed functions (and thus workers) exactly at the time they are needed most:

Even with just no growth, debt and unemployment become intolerable quickly all on their own (see graph below). With a shrinking economy they will become completely unmanageable. Hence the advent of the term "The Great Reskilling." An economy filled with specialists suddenly will find itself unable to employ them in their specialist roles — ever again.

We will likely experience one or more steps down before we reach a Big Step down through some sort of cascading failure, perhaps several weaker currencies implode back-to-back.

And much of this was foreseen decades ago by the Limits to Growth team:


The Graph shows 'Debt to GDP' ration falling towards mid next decade before rising -surely this is rising precariously quickly NOW?! (Gov. Debt is currently at an all time high no?)

Is this an old graph?? (pre-2008) Does anyone have a current Debt/GDP ratio graph?

Regards, Nick.

Yes, the graph came from a study from a few years ago. They were interested in creating a sustainable economy and looked at the no growth scenario.

From a previous post:

This graph is from the Peter Victor's presentation at The Population Institute's "Population Growth and Rising Consumption: What’s Sustainable?” event a few months back:

Heinberg's presentation will be familiar to most people on TOD. There might be something new in the other speakers' talks but only if one is new to the topic. Some people (like Peter Victor) are not yet up-to-date on oil, so he makes forecasts that have little relationship to reality (in my view).

The speakers were:
Dennis Meadows, author of Limits to Growth (1972) and Limits to Growth: the 30 Year Update (2002)
William Catton Jr., author of Overshoot: the Ecological Basis of Revolutionary Change (1980) and Bottleneck: the Human Impasse (2009)
Laurie Mazur, Island Press, editor of A Pivotal Moment: Population, Justice and the Environment Challenge (2009)
Peter Victor, York University, author of Managing without Growth (2008)
Richard Heinberg, Post Carbon Institute, author of Peak Everything: Waking Up to the Century of Declines (2007)
Robert Engelman, WorldWatch Institute, author of More: Population, Nature, and What Women Want (2008)

All videos available via iTunes (free; will launch iTunes and bring you directly to the videos):

Just to clarify, the graph comes from a simulation of the Canadian economy made just prior to the start of the current recession. (Details of this and other scenarios are in my book Managing without Growth: Slower by Design, not Disaster). At that time Canadian governments (i.e. all 3 levels combined) had been running budget surpluses for many years. In the scenario illustrated by the graph, measures to deliberately eliminate growth from the Canadian economy are phased in over 10 years starting in 2010, hence the continuing but temporary decline in the debt to GDP ratio.

It's a mistake to regard the scenario as a 'forecast'. It's meant as an illustration of what can happen in an economy built on a commitment to growth if the conditions for growth are no longer met and provision for such a possibility is not made in advance. Access to cheap oil has been one such condition in the past - and, yes, I do try to keep up to-date on oil having, for example, just read Steve Sorrell's report on Global Oil Depletion for the UKERC.

It's rising now, but will likely fall precipitously soon.

Well done, prescient.
Now we wait and see what type of political units arise.

If you enjoy radio:
BBC Radio 4 Thurs 21:00

Scientists are warning that our planet is fast running out of many essential materials. Dwindling reserves of platinum, copper and phosphorous could create crises in the electronics, medical and farming worlds. There are fears that competition between countries for remaining deposits will result in 'resource wars'.

Materials scientist Mark Miodownik finds out how serious the situation has become and asks what scientists, politicians and economists can do to secure the earth's resources for future generations.
Thu 11 Feb 2010


Globalisation as represented by the movement of people and stuff around the planet will definitely change to reflect the end of cheap carbon-based fuel. Globalisation in terms of the movement of data and instantaneous direct 'Peer to Peer' communications will continue to gather pace, and IMHO rapidly lead to a once and for all epochal transition to a networked society which is decentralised, but connected.

The existing overlay of finance capital - consisting of Credit/Debt created as money by banks, and shareholder value-style equity in a Joint Stock corporation - is terminally dysfunctional due to a systemic shortage of bank capital. Humpty cannot IMHO be put back together again.

More to the point, such finance capital is also unnecessary in a dis-intermediated networked economy, the development of which has to date been held back by the absence of the necessary networked enterprise model or legal and financial structure.

As Professor Michael Hudson puts it, if debt cannot be paid, then it will not be. Both Nassim (Black Swan) Taleb and Willem Buiter agree and suggest that the future must lie in equity. Conventional solutions address only the quantity of (debt-based) financial claims, either through bankruptcies, and deflation/depression or inflation. A debt/equity swap maintains the number of claims, but changes their quality, essentially by removing the dated debt obligation, and it could be looked upon as a sort of once-and-for-all consensual Jubilee.

I outlined a new - partnership-based - approach to finance and a holistic view of a networked economy in Norway last summer. This is based upon direct (P2P) investment in, and exchange of, the use value over time of the three basic factors of production: Location/Land; Energy (dynamic and embedded in materials and people); and Knowledge (either subjective, and dying with us; or objective).

The bottom line is that I am optimistic as to the future, because I think that the necessary tools are pretty much available, and can and will spread virally.

Very interesting. It has elements of revolving credit systems like tanda.

Need credit? Ask your community

Has anyone begun to implement your system?

The majority - many thousands - of Swiss SME businesses have been clearing credit among themselves since 1934 on the WIR credit clearing union.

No actual 'fiat' Swiss Francs change hands on the WIR , but billions of swiss francs' worth of goods and services change hands on credit terms by reference to the Swiss Franc as a 'Value Standard'. The discipline of a framework of trust - covering defaults on debit balances - is provided by a mortgage over property.

I advocate extending such credit clearing to individuals, and to do that individuals need 'money's worth' generally acceptable in exchange. I think that this value will include units redeemable in payment for land rentals, and units redeemable in payment for energy.

I am aware of several projects converging on the necessary generic tools: I think we will see such clearing taking place, probably initially in less developed countries, within a very short time.

Even with equity financing, it seems like that the "always less and less issue" is going to be a problem.

Suppose you have land for natural gas production. To actually get it out, you will have to drill and drill, do fracking, and the like. Even with the best of estimates, you are likely to over-estimate future production, because obstacles will come up as you go along. For example, drill bits may become less available over time, because the necessary inputs are not available, indirectly because of peak oil, lack of fresh water, lack of minerals at a reasonable price, and a reduction in globalization.

So any kind of equity investment will have a downhill "slope" to it, reflecting constraints on essential inputs (and perhaps constraints due to pollution issues as well). It seems like this will be difficult to sell to investors.


The methodology I am proposing is aimed at funding the transition through a market-based alternative to the dysfunctional CO2 based markets.

The interesting thing about 'unitising' and selling forward renewable energy and energy savings is that you are getting value now for something that will cost you nothing to redeem in the future.

The lowest hanging fruit is in the countries with the biggest waste.

Iran exports crude oil and imports gasoline which it sells as low as $10c per litre. The subsidy is massive and they can't afford it, which is why they actually want gasoline sanctions - because then they can blame the Great Satan for a policy they cannot impose.

My approach to them - and they were very interested before the 2009 election madness set in - is to raise gasoline, natgas, etc and electricity prices gradually to global/regional levels, and avoid bloody revolution by issuing Units redeemable in payment for these fuels and/or electricity by reference to an 'Energy Standard' unit of measure.

Some of the funds received are retained as a carbon levy into a 'carbon pool' available for loans denominated in energy, and to be used to build renewable Mega Watts, and for energy saving Nega Watt projects.

Then consumers have a choice - they can waste their energy dividend on profligate use, or save it and use the Units to pay for savings, or as currency with a regional and global value.

Gail -- true about potential lack of capital for infrastructure but today it’s a severe lack of drilling capital. Don’t need to worry about running out of drill bits right now: plenty sitting in the warehouse collecting dust. And it’s not just an issue like the lack of price support to warrant shale gas development. Current oil/NG prices are more than sufficient to justify drilling many more conventional plays then we are now seeing.

In a few days I’ll have a pretty good picture of current capital availability in the oil patch. The North American Prospect Expo begins tomorrow in Houston. Companies (probably over 300) will be offering drilling opportunities. It’s good to remind folks that the majority of wells drilled in the U.S. are done so by the independent companies. ExxonMobil et al are relatively minor players in domestic efforts. I’ll be on a drilling barge in S. La. for the next three weeks but I’ll be getting daily reports from my cohorts. Even though we’re buyers we’ll have a booth. I’m sure other buyers will stop by and say hi. At the NAPE last August there were over 200 prospects sellers and maybe just half a dozen buyers. Lots of viable prospects offered that made sense at the then current prices. And everyone knew it was a good time to drill…if they only had the money.

While it’s true that no amount of U.S. drilling activity can have a significant impact of PO it has been, and will remain, a critical component of our economy. It provides 100’s of thousands of jobs, many billion in tax revenue and lessens our import imbalance by tens of billions. The worse case scenario might be a gradual return to domestic drilling running smack into the D.C.’s latest announcement of adding $40 billion of new taxes on the oil patch. OK with me: just drive more of my competitors out of business and I’ll retain a controlling position. But not so good for the country. The Feds would benefit initially from the revenue boost but they may also be poisoning that cash cow to such an extent it might never recover.

As I mentioned upthread, Dennis Meadows of "Limits to Growth" says that the limiting factor going forward is likely to be capital. The lack of capital you are seeing is to me related closely to this issue.

I also mentioned upthread I was not in favor of expanding wind. With wind being so capital intensive, I doubt we will be able to do much wind expansion because of lack of capital. Expansion of wind will tend to take capital away from other better uses of capital (like drilling for oil, where it is cost effective). And we will almost certainly not have the money to upgrade the grid as much as is needed for any substantial increase in wind use. We are already hitting limits in some places.

With regard to globalization, I note that the same shipping container that can hold 25,000 "Big Mouth Billy Bass" that will be on sale at WalMart for $12.95 can also hold 25,000 4GB hard drives. Guess which one will still be getting shipped the longest?

As Gail said, there will also be nation-to-nation swap deals: our wheat for someone else's oil, for example.

As long as the Internet can stay up, so can a lot of globalization. The energy cost and total monetary cost of shipping a container across the Pacific really isn't all that very high. Shipping something heavy and bulky a few hundred miles over land might become too costly well before maritime shipping does.

I'm wondering if the parts of the world close to deep water shipping ports are those most likely to continue to have high tech longest. Shipping is now very efficient, unlike land transport. Therefore industry has the cheapest access to raw materials and markets.

Under that understanding land-locked countries and regions are worst placed - many of the 'stans, eastern europe, central africa, parts of the US, etc.

Also large percentages of each countries population become surplus to requirements and will probably be discarded.

Unlike Gail, I expect a phase-change in the system at some point soon. Possibly related to triage, I expect the system to head towards centralised planning and the active disposal of parts of least survival capability as peak oil reality becomes recognised. Of course, under that scenario there is no need to ship goods half way round the world; you will locally have available a workforce that will manufacture in sweat-shop conditions for pennies.

I think all of this depends on how well governments and what are currently countries hold together. If we see a lot of splits into what are now, for examples, states of the United States, or provinces in Canada, individual areas could very well go different directions.

Good analysis and timely.

Regarding "debt unwind" it should be noted that this is a function of government policy, not a natural force. Which contracts are permitted, which are enforced and on what terms is decided by legislatures and judges.

As with any policy, the burdens will be uneven in cross section and over time. The policy can be changed to shift the impact.

For example, in the extreme, Congress could pass a law declaring all mortgages on owner-occupied homes null and void. Of course, the lawyers would have a field day but the damage to the banks and the benefits to homeowners would be done.

Some major social sectors will need to go into mass default to resolve the crisis. In 1971, Nixon closed the gold window.

I think debt unwind is both a function of government policy and a natural force.

The reason are two reasons it is a natural force:

1. At this point, the amount of debt has exceeded the reasonable amount of resources to which it relates, there is no way it can be paid back.

2. Borrowing from the future "works" as a strategy, when an economy is growing fast enough that future growth leads to a situation where future revenue is sufficient pay back debt with interest. Once growth cools down to a point where there is not enough growth to pay back debt with interest (like now), there are many more defaults, and a natural cycle starts. Banks see a higher default rate, their capital becomes depressed, they tighten lending standards, and the amount of debt issued goes down.

Which contracts are permitted, which are enforced and on what terms is decided by legislatures and judges.


You hit the nail square on its head here.

Our economy is based on people making promises to each other (ie contracts).

At some point, the promises can no longer be kept.

At some point, more and more people start realizing the promises can no longer be kept.

People have been trying reform the political Price System since not long after its invention in Mesopotamia. The Reforms Of Urukagina

It is a disappointment to me that people like Charles Hall do not reinvent themselves in regard to presenting creative alternative... as in advocating for a non political/non business approach, or does he? Econophysics relates price system thinking to neo-classic economics, but also fails to really advocate any kind of future system for the present. It just crunches numbers for the quants.

Science people seem to play a very passive role these days which is a pity. The very people that could be telling the world of viable alternative biophysical applications of energy accounting in a non market future?
Where are you?
Maybe it has something to do with tenure and corporate funding... it sure has nothing to do with the reality of the situation we are in, or being of creative, problem solving mind.
The Technocracy Study Course, mostly written by M. King Hubbert and Howard Scott among others pointed out clearly and simply what happens as a result of using our price system and what the eventual consequences of that are.
I guess I do not understand how it is that the various departments of biophysical economics do not actually come out and say that the Technocracy technate blueprint is probably the most creative approach to the current problem of future ... round the corner collapse Technocracy Study Course

This unique, American in origin design, may be the only viable fall back position.
It also figured out the issues in 1934.
The issues today are identical.
Thermodynamics in a sustainability context to population and resources using science as the arbiter of decision making, in a secular, arguably humanistic package.
Hubbert was a social activist. He may have been one of the most creative people in the 20th. century. He left ideas and a legacy. Anyone care to listen? Man-hours And Distribution by M. King Hubbert

As I understand it, Technocracy is a type of planned economy with the planning done by scientist and engineers. From what little I have read, I am not convinced it will work any better than any other planned economic system. I will have to admit that politics is not my subject, however.

I think that as we go forward, the size of individual countries (political governing units) will tend to get smaller and smaller. This may only mean that federal governments will have less and less power, and local governments more. At a local level, different forms of government may be more feasible than on a wider basis.

As I understand it, Technocracy is a type of planned economy with the planning done by scientists and engineers. From what little I have read, I am not convinced it will work any better than any other planned economic system. I will have to admit that politics is not my subject, however.

I think that as we go forward, the size of individual countries (political governing units) will tend to get smaller and smaller. This may only mean that federal governments will have less and less power, and local governments more. At a local level, different forms of government may be more feasible than on a wider basis.

It is a planned economy in the sense that it has a plan yes. The plan is using a thermodynamic based energy accounting system not a debt based money system.
It is not political.

It uses 'energy certificates' or 'units', and is based on sustainablity. It deducts the amount of energy used to maintain the infrastructure of a technate, then divides what is left to citizens for consuming, as a 'right of citizenship'. All within biophysical limits. There is NO money involved.

It uses the 'vertical alignment' system common to business in a meritocracy system because of anthropological reasons. It is not a moral or ethical or aesthetic based idea.

It is called a science based social design.
People can only consume so much. It does away with contract society, private property and Adam Smith throwback template ideas.

Are you following me so far?
Some have a hard time wrapping their heads around how creative an approach this is and try to relate it to other unrelated ideas, like mainstream politics or mainstream economics.

It is not like any other planned economic system as it is not based on commodity valuation concepts or ideas.
It is not a replacement for a Price System it is a different idea completely.

It is a non political system.
It precludes any type of special interest control.
It advocates a North American technate for starters because of the current installed technology, resource base, and trained personnel.
North America contains around 52% of the worlds resource base... The old Russian Federation contains around 33% of the worlds resource base.
That is the reason of our past success.
The resource base.
It can be used also in other areas and eventually could be, but it has to start somewhere.

Gail, if you take the time to look at this information you may find it a more creative alternative than the Kunstler approach which you seem to be indicating as an alternative, or collapse default position.
If you think Hubbert was an interesting person, then look into it. The last two chapters of the Technocracy Study Course contain the design ideas, but the whole thing is good reading.

Funny that the crux of all the ideas connected with Hubbert and the Oil Drum and energy are connected by this technocratic plan which was put out by the most creative group of the 20th. century, arguably, and people are not aware of it.

Let's see, it's a planned economy with no money that "divides what is left to citizens for consuming, as a 'right of citizenship'" - and it's not political. No siree, the selection of the technate-bosses (i.e. the ones who actually do the "planning") is so blindingly obvious that all citizens agree unanimously, so see, ma, no politics. The best course of action is invariably so blindingly obvious that the members of the boss-directorate always agree with each other automatically and unanimously, so see, ma, no politics. And the sheeple always obey blindly and unanimously, so see, ma, no politics.

Bwahahahahahahahahahahaha, ROFLMAO, sure, right, what a load of cobblers.

Oh, and who bothers lifting a finger to do any work, with the dividends simply a 'right of citizenship'? Yeah, that's right, no one eats unless someone works. There's no money, so either everyone starves or else there's still some system of, let's be polite and call it feedback to induce or coerce at least some to work. Naturally there could never be the slightest whiff of politics in that, since the place will be full of invisible pink unicorns rather than real people. There could never be any of the tiresome unremitting bickering, infighting, and meddlesomeness over work and rewards, that over time drove all but a handful of Israelis out of one of the most idealistic of such arrangements ever invented, the Kibbutzim, since it would never happen among pink unicorns. And even with monetary feedback abolished, political pressure on slackers will nonetheless be needless, because pink unicorns do their share magically and automatically. And every evening they'll celebrate the closing of the day by circling round invisibly to sing Kumbayah at perfect pitch and in perfect harmony. Golly, aren't the Intertubes a marvelous fount of fatuous rubbish?!

Good gawd, John, have you never, ever, in your entire life, been a member of any sort of organization whatsoever - an NGO, a civic club, a church or synagogue, a civic chorus, a club sports team, a town board, whatever, anything? Please, please, go get a life, and, in good time report back to us on how well this sort of stuff works out...

Good gawd, John, have you never, ever, in your entire life, been a member of any sort of organization whatsoever - an NGO, a civic club, a church or synagogue, a civic chorus, a club sports team, a town board, whatever, anything? Please, please, go get a life, and, in good time report back to us on how well this sort of stuff works out...

I guess even on this type of site there are clowns and trolls. PaulS.
Never engage a clown.
Have a nice day.
Whoops, I did it.
I suppose you think M. King Hubbert and the Technical Alliance were part unicorn also?

I just happened to finish a post on what happens when messy politics or any kind of uncertainty is involved in the decision making process.

"Why we can't finish stuff: Bottlenecks and Pareto"

Its a long post but the implications are quite striking. Anything we do that strings together stages of decision making prolongs the entire process, to the point that nothing ever gets done.

Gail's suggestion to carve things up seems sensible in this context.

On human time scales, but what if the decision strings were at state of the art computing time scales and incorporated a "evolution" algorithm? I don't understand what Bill Gross refers to as evolution and I could imagine the many and myriad branches in the tree but it sounds like there might be the kernel of a great idea buried here.
Talk about chaos though!

The only problem I see is that you have to already kinda know what you are looking for in order to set the parameters............

Check out this video where he mentions using a computer run decision string to design a sterling engine.

Not Sterling engine but the solar concentrator mirror for the SE.

Interesting stuff

Porge, a seriously brilliant observation. I have heard that is the strategy being looked into by some bigwigs. Some sort of AI at the root to try to automatically come up with a design. No more humans needed!

And yes, someone probably has to program in the Artificial Intelligence.

@ Gail, John Carter

More than two thirds of financial value in existence came into being as mortgage loans created by banks. ie our economy is deficit-based but property-backed.

While a relatively small amount of this backing represents energy embedded in buildings, the lion's share is actually the use value of land/location - in 3 dimensions (actually, with airline slots it's almost four).

Likewise, an increasing amount of value in the economy is based upon objectified Knowledge aka 'Intellectual Property' - ask Microsoft or Oracle's shareholders and customers what that's worth....

I agree that the energy accounting advocated by Technocracy is an essential element, which is why I advocate the use of an "Energy Standard" for transactions. I also envisage an International Energy Clearing Union, and energy-based currencies for national cross border trade, I think that Technocracy's solution is fatally flawed -like all other schools of political economy - by its faulty assumptions as to the basis of value - as opposed to the measure of value, which can and should be an absolute amount of energy.

In my analysis, a reality-based economics would be both market-based - and not planned - and founded upon the use value of Location, Energy and Knowledge, rather than the purely ideological assumptions we have now.

Chris Cook quote, ''Likewise, an increasing amount of value in the economy is based upon objectified Knowledge aka 'Intellectual Property' - ask Microsoft or Oracle's shareholders and customers what that's worth

There is no future in that.
As said Technocracy is not a political economy, but is is a type of non political government.
It is not a Price System. It does not 'monetize' energy into a form of Price System.

Maybe check out this for more basic understanding of how energy accounting without using money but using natural capital, is not related to what you are thinking of: Environmental decision making, science and technology.

This is not connected to corporate culture or controlling people in a class or caste system using debt tokens or money or monetized energy tokens.
Those days are over also.
Scarcity economics is a dead letter unless in a collapsed fascist socialist dictatorship... that may even be referred to as a 'democracy.'... kind of like the current system except a lot worse.
By the way the word 'planned' economy comes from the Wikipedia description of Technocracy, and Wikipedia is flawed big time for any serious debate. To say it is not peer reviewed is understatement.

Mene, Mene, Tekel, Upharsin

Science has written these words across the walls of the Price System. That system has been weighed in the balance and found wanting. Value is an intangible, and its weight can change without any physical reason. As exchange-value is the basis of all Price Systems, the whole structure is metrically unsound. Neither value, price, nor money, may be measured physically; and so science has relegated all three to their proper place along with the wails of the banshee, ghosts, astrology, and all the other trappings and paraphernalia of necromacy.

There is only one science and it is founded on human observation by means of the physical senses. Science sets up arbitrary systems of measurement and these systems cannot and do not change. Science cannot deal with such will-o'-the-wisps as values and price connected to The Mystery of Money.

Lets not confuse the ideas of a Technocracy technate with monetizing your version of 'value' and 'prices of knowledge'. There is no connection at all. Zero.

@John Carter

Value is definable only in relative terms: the 'relativity of desire' is one way of looking at it.

The economy I envisage is a participative, non-hierarchical, and networked economy, and note that there's no scarcity to energy and knowledge, despite attempts to enclose them like land.

Ideally we'll end up in a gift economy, but it will be a long time before enough trust is present for people to stop requiring a truust framework, and making value judgements by reference to some sort of pricing standard.

The point is that we have to get 'there' from 'here', and I suspect you'd have difficulty explaining and selling a Technate to Joe Public. Whereas I observe, document and analyse new collaborative market mechanisms which are actually emerging in practice because 'they work'.

Whereas I observe, document and analyse new collaborative market mechanisms which are actually emerging in practice because 'they work'.

Sorry, but using abstract values that measure nothing real, like debt, in any kind of monetized form, is just another Price System.
That is the system we currently use. It is a doomed system. Money leads to a desultory end because it cares nothing of environment... just profit. Growth dead ends now.

Gift economy? That does not sound good to me. What if no one gifts you or someone falls through the cracks?
Playing with aspects of trying to control humans is very much not in sync with what I was talking about as to a technate design.
The idea can not be sold either. Either people like it or not, but it probably is the only real way to survive the coming collapse which is inevitable.
The old Fema system, designed by technocrats, starting in 1938 suspended rents, mortgages and utilities for the entire continental U.S. during the 'emergency'. It also pulled the plug on the political system. That is why Homeland defense under the Repubs and Dems got rid of the old Fema system.
It was a bridge to a technate. No conspiracy but that is what happened.
It has been pretty well known in the past (intelligence circles, war colleges etc.) since at least the period of the mid thirties that the Price System destroys itself... and now that is going to happen. M. King Hubbert pointed that out very patiently till the very end of his life.
Hubbert explaining Peak Oil.
Maybe the coming chaos will spur on more creative listeners to good information.

@John Carter

Sorry, but using abstract values that measure nothing real, like debt, in any kind of monetized form, is just another Price System.

That is the system we currently use. It is a doomed system. Money leads to a desultory end because it cares nothing of environment... just profit. Growth dead ends now.

I couldn't agree more. It is a system that is dead on its feet.

You seem to think I am advocating some sort of abstract unit of measure. I am not. I advocate the use of an absolute unit of energy as a unit of measure or value standard for exchange.

An Energy Standard.

The conventional price system will destroy itself because it is based upon money created as interest-bearing debt. The toxic combination of compounding debt and private property has always been unsustainable, and the latest instance is IMHO just the biggest and the most conclusively terminal.

Pricing exchange transactions in energy, however, will work within the correct clearing union framework.

The result will, among other things, be of energy accounting, and I had thought Technocrats favoured this.

Chris, John,

I have always agreed with you and others that energy should be the basis of measuring all human and by extension "economic" activity.

I also agree that a market based model allows for multiple times more opportunities for feedback and hence improvements and refinements and also more degrees of freedom to the participants.

There must be a way of preserving the positive attributes of the "invisible hand" while incorporating the vastly superior scientific method verses human desires and emotion.

The problem with the market approach (in it's perfect form) is among others the short sighted and small minded choices resulting in long term problems.

We need a way of allowing maximum freedom of choice while continuously generating improvements all the while thinking about long term consequences.

This could be a newly developed ethos via the education system and the media.

Both you guys are converging on what I intuit to be the ultimate state of humanity.
That is if we can get there from here.

There must be a way of preserving the positive attributes of the "invisible hand" while incorporating the vastly superior scientific method verses human desires and emotion.

Energy accounting means you can be a consumer and get what you want within a given technate resource base. You just do not pay for it. Understand? No you do not... but thats ok.
People seem to be hypnotized with concepts of debt here and fake money values.
Part of that may be the Gail the Actuary focus of thinking in terms of debt, as was said recently, without acknowledging that debt is a fake concept meant for social control in a class/caste system. Follow?
No, I know you do not.
But think about it.
Lots of tail chasing is then interrupted.
Adam Smith slept through the early beginning of Industrial Revolution. Soundly.
I would venture to say that few on this site have actually explored what M. King Hubbert was actually advocating as a technocrat --> Hubbert and the Technocracy technate design. General info on Hubbert including Man-Hours And Distribution.

Thanks porge... but, there is no connection to what the two of us (Chris and I) are talking about, and the 'invisible hand' idea is not really an option now unless it is a dystopian chaos that is the next most likely in a collapsed Price System.
So your on the wrong track with your linking anything I am saying to what you are thinking.
Again this idea was thought out pretty completely and uniquely from about 1934 onwards. Google Technocracy technate, Technocracy Study Course etc.

The wheel was invented also in Mesopotamia a little around the time of writing and a lot of other things. That was also the time that our present political price system was invented... temples were the first to use the idea of usury (debt based contract society), also in Mesopotamia, and even the smarter of the Libertarians acknowledge that it is only a manifestation of a time and place that steam rolled into the origin of the political price system: Hayek, from the Use Of Knowledge In Society ...our patchwork system of now.

The invisible hand again is not connected. Glorification of the market is like Marx glory of human labor or glorifying markets by Reagen.
Silly and propaganda in this day and age.

I am now thinking that the subject is not one people here really grasp at least not presently... mostly because of societal brainwashing, and that is a pity, because the clock is ticking.
Funny people got these ideas more in the 1930's... before Hearst and some others closed off media about the ideas.
You would think that the internet would be able to deliver better information but people keep following their noses to the same broken down bullshit over and over.
The original statement about Technocracy being a 'planned economy' is not accurate in the sense meant. It came from a 'popular' online encyclopedia which is never a good source of information.

The "connection" I am supposedly drawing is that both Chris and Yourself advocate energy as the measure of potential activity.

Also I don't know where in the world you came up with anything to do with debt in my reply.

The "invisible hand" that I refer to is the "vote" of sorts that, I am sure Smith meant, that occurs at the point of trade or whatever you like to call a transaction for goods or services.

Believe me that most people here are already well aware of technocracy and you would do much better to acknowledge that.

You haven't been here long enough.........If you had you would have already seen that I have also described debt and money for that matter as social control mechanisms.

Furthermore, I agree that technocracies ideas would be a huge improvement over this mess but my main concern is that there would be a fall of in innovation due to the lack of the dynamics that the market system has thrived on.

Have you ever heard of the Zeitgeist Movement or the Venus Project?
I believe that Jacques Fresco is a former Technocrat that left because he differed with Howard Scott's attitudes toward certain races.

Edit: Porge
Have you ever heard of the Zeitgeist Movement or the Venus Project?
I believe that Jacques Fresco is a former Technocrat that left because he differed with Howard Scott's attitudes toward certain races.

Fresco is not notable, or if he is it is not for anything I am referring to here or elsewhere such as energy economics. He was hired as an illustrator by TechInc in the mid forties and then became a member. Zeitgeist is a conspiracy group (the Jews did it, along with some aliens and the New World Order, more bullshit) which also tracks back to believing in Lizard blood from outer space.
So there is no connection to either very non notable group.
Besides Porge, that is utter bullshit.
The Technical Alliance had some of its research done at Tuskegee University, all black. Also Technocracy Inc. was most likely the 1st. integrated membership group in the U.S. - Yes, it was a membership group that was fully integrated in 1934 at its inception.

Apparently Fresco likes to defame Howard Scott for his own attempt at notability.
Like others, he got some ideas from people like M. King Hubbert and then turned them into something else. He sells books and films etc. Buy the DVD. Its all centered on him.

If you do not check your facts and give out information like that, you sound like a propagandist, with guilt with associating negative things.
You understand that Porge?
Propagandists, whether in the economic, political, or religious fields, have had a long experience in, and have perfected various techniques for propagating deception. One of these techniques, as we have already indicated, is that of `association.'
Associating racialist stuff is that.
Get it?
The trick is to take something and attempt to influence opinion for or against it by associating it with something else regarding which either a favorable or unfavorable opinion has already been formed.
So if you want to be a dupe Porge... then be one, but do not confuse that with information.
As said Technocracy Incorporated was most likely the 1st. integrated membership group in North America.


Here is an Ad Hominem for you.,9171,744852,00.html

But of course this is probably more propaganda.

Where do you get your perfect information anyway?...........You read it somewhere right?

I don't see where Fresco is advocating anything inconsistent with Technocracy and who cares who gets credit anyhow.
I want to see things put right.

Zeitgeist is a conspiracy group (the Jews did it, along with some aliens and the New World Order, more bullshit) which also tracks back to believing in Lizard blood from outer space.

This is exactly are discrediting yourself.

Again if you are here to sway intelligent open minded types you need a new tact.

Again if you are here to sway intelligent open minded types you need a new tact.

Not so much.
You have already discounted yourself pretty much.
Zeitgeist has been banned in Germany from a popular social networking site... Zeitgeist ban on German networking site because of racial aspects.

I seriously do not think you want to stick with any real issues, and are interested in pawing the ground in a comical way. Good luck in the coming apocalypse. And good luck rearranging the deck chairs. I hate propaganda.

I have read all their stuff and have listened to many interviews and you have not.
You are the uniformed one as regards Zeitgeist.
Take some of your own advice and learn the information first hand before you open your mouth.

The irony is that I agree with most of what you believe.

You also ought to learn to admit when you are wrong.

An Energy Standard.
The conventional price system will destroy itself because it is based upon money created as interest-bearing debt. The toxic combination of compounding debt and private property has always been unsustainable, and the latest instance is IMHO just the biggest and the most conclusively terminal.
Pricing exchange transactions in energy, however, will work within the correct clearing union framework.
The result will, among other things, be of energy accounting, and I had thought Technocrats favoured this.

No Chris. That maybe your idea of a Libertarian version or something of energy economics but it is not connected, even remotely to what M. King Hubbert was talking about.
I have given the link to Man-hours And Distribution a couple of times now. Start there if curious because what you are talking about is not energy accounting.
It is monetizing energy as a Price System and that is just as far away from energy accounting (by TechInc who invented the idea) as can be.
This site seems hung up on credit debit control issues in general in the sense of taking them for reality?

What is a Price System?
A Price System is any social system whatsoever that effects its distribution of goods and services by a system of trade or commerce based on commodity valuation effected by means of debt tokens, or money. The term Price System must not be confused with such terms as profit system, or capitalist system, and it may be added in passing, that unless it be in some remote and primitive community, none other than Price Systems exist at the present time.

In a Technocracy technate design, private property would become obsolete. All "property", technological development and production including automobiles and housing would be owned equally and in common by the population of North America.
Personal choices in housing would be allocated according to need; car usage would be accessed by the Energy Certificate in much the same way "U-Drives" are now obtained. Public transportation would be developed to the limits of technology and imagination. Mortgages, car payments, maintenance and insurance, debt and all taxes would be nonexistent.

Does that sound remotely anything like what you think the Technocracy design is then Chris? Probably not.
Consuming as a right of citizenship... and it can not be monetized.
As a consumer you may want to eat more than 2,000 calories a day but you notice it is not easy to do that?
There is a limit to how much clothing you wear. Right?
You in an urbanate could only occupy so much space.
Again I see that this concept is not really known here.

You sound like a bitter old man John.

Don't you recognize that people will see technocracy as a lose of freedom?

No you don't. I can see that there are many concepts that are not known to you.

If your presence on this site is an attempt to win converts you will need to soften your approach.

If your presence on this site is an attempt to win converts you will need to soften your approach.

Really man, don't troll me.
Converts is a religious term.

When the loans exceed the value of the property (and by any reasonable valuation they do), then the debt is not property-backed to any real degree.

Plus, much of the GDP due to finance is from reselling of synthetic investments, which have even less real value.

IIRC, Historically the finance contribution to GDP was less than 2.5%. Today it is, what, 5x that? I suspect you can take 2/3 of that income, and all the stuff on which that income is based, and simply flush it away.

So at what point is this debt Jubilee to be given and would there not be intense lobbying by the banks and debt holders, such was seen in the USA health care debacle? I would think this would be so extreme in relation to nearly all other US economic events such as the gold confiscation and bank closure,to make this the most controversial event in US history, at least from an economic standpoint.

There is international debt as well. If the Jubilee applied to it, it seems like it would cause huge disruption and likely retaliation. Foreign countries would likely cease US owned property in their country to compensate.

So, Gail, I guess this is why traditional zero growth economies, such as medieval, Christian Europe, and medieval, Islamic Middle East have strict prohibitions against "usury"; lending money at interest. Because this type of lending is so disruptive of social stability that it must be outlawed. And I guess these peoples weren't so "backward", stupid and unsophisticated after all?

For a good commentary on the church and usury in earlier times, I recommend R. H. Tawney's classic Religion and the Rise of Capitalism.

Our growth economy is what allowed us such extravagant use of debt.

Back in the middle ages, their economy was close to flat, so it would be hard to repay debt with interest. As we go forward, we are likely to be facing a declining economy, so I expect things will be even worse.

Really glad to see this kind of financial analysis being done, because it pertains to the implications of post peak. Good predictive work Gail, but I shudder to think of the consequences of that unwind as we move forward.

The stock market was rocketing up until it just happened to hit the same retracement amount after the initial depression stock market also went up in its bear market. Just recently, just as it did back then, it started back down and as of today and is now down below 10k. No surprise there.

The Republicans resisted any further debt in the post Depression, and it was not unil huge debt was taken on to fight WWII that the economy got moving again. And we see history repeating itself this time as well, with resistance to taking on more debt. Unfortunately however, more debt will not change the reality of a post peak oil economy.

In any case, I wonder if there will need to be some provision to allow people to remain in their homes in spite of a lack of funds to pay the mortgage? Or do the banks continue to send families out into the streets to fend for themselves? Of course at some threshold there will be millions of empty homes and millions of people living in their vehicles on the streets. Seems like there will need to be some kind of compromise to keep people housed.

I can't see that banks have any real use for houses. Houses are better put to use housing people, so I expect that ultimately people will end up in houses. The question is whether these houses will be in the right locations for work, etc. If not, how will any future purchases/sales be made? Especially new homes. If people cannot pay back debt with interest well, do we rely on inheritance as the primary way of disposing of property? It seems like we have problems, no matter how the initial disposition of homes is done.


Economic decline -> lower energy demand -> lower energy prices -> lower return on energy (renewable and non-renewable) investments -> fewer energy investments

Fewer energy investments -> lower energy supply -> higher energy prices -> higher return on energy investments -> more energy investments

This dynamic would seem to me to set up a classic business cycle of expansion and contraction. What we are likely to see are surges of energy investments that bring more supply on line, then a dearth of energy investment as prices plumet, then a surge of prices as supplies wane; rinse and repeat. Yergin's "undulating plateau", except this isn't a level plateau, these cycles undulate around a downward trend line.

It makes planning that much more difficult, but it helps if you understand that this is what is going on.

Yeah, the one-way nature of that feedback loop didn't work for me either. The next slide shows "less oil -> travel more difficult", but the "less oil" is due to lower prices, so lower prices !-> travel more difficult, but rather lower prices -> greater demand. Greater demand + less supply -> higher prices + more investment. I think it's more likely that lower disposable income (due to lower pay and greater debt service) -> less travel.

Of course, all of this runs up against the current reality. Demand in the developed world has fallen, but prices not so much. That's because increasing BRIC demand -> higher prices. So BRIC demand + OECD demand -> prices about the same. Prices about the same + reduction in financing ability -> slight reduction in investments. We're kind of in limbo right now with prices because all of these effects are balancing out.

The other factor is that while we presume the ability to bring new extraction on line is being reduced by depletion, the amount being demanded is less than the current ability to supply. Some fields are being "rested" due to reduced demand. That should improve their total recovery, right? It seems we're in part repeating that blip in extraction (due to reduced demand), that we last saw in the 80s.

I like your position,but I wonder if this time is different
How would unemployment (unemployment, under-employment, and part time) factor in coupled with the attempted repayment of debt?
I can see where the "work value" of oil might get closer to the market price of human labor. Some drop in wages in higher income countries, with a sizable increase in fuel prices here in the US.

WNC Observer,

YOu may be right about the cycles undulating around a downward trend line. I think of sort of a sawtoothed effect, but downward sloping. It really depends on how well the international financial system holds together. If there is a break in that, then things could go downhill more quickly.

OMG, somehow I ended up at The Automatic Earth when I clicked on the TOD link! *grin*

Oil Drum folks, isn't it time the hatchet was buried and TAE put on the finance blogs blogroll?

Having said that, good post, Gail

TOD is depressing enough (I read it every day)

But TAE is downright too scary!

Second the motion.

All in favor?

Absolutely. Why was it ever removed?

You made a good case for deflation Gail, but what shall I do with my free cash ?

I could try and make my office ( a general family practice in rural Austria) depression proof by minimising costs:
The easy part was paying back debt. So now I have 15.000 € which I formerly spent on interest to invest with the aim of reducing running costs. I operate 5000 square feet, in an evironment with 4200 heating degree days a year. I use 4200 (42.000 kwH) Liters of heating oil and 15.000 kwH of electricity per year. My options are all bad, because uneconomical at current prices :
- Installing a photovoltaic roof (6 kwpeak): Cost 24.000 € Return 6.000 kwH per Year: 5,6 US $ invested per kwH/ Year saved.
- Installing controlled ventilation with heat exchange: Cost 20.000 € Return : 10.000 kwH Heating energy per year, that works out to 112 $ per Gallon Heating Oil saved /Year
- Improving wall insulation (U 0,4 >> U 0,18 (W/sqm/Degree celsius)) : Cost 30.000 € Return: 8000 kwH (210 US $ per Gallon heating Oil/ Year)
- Changing windows to triple glacing. (U1,4 >> U 0,8) Cost 28.000 € Return: 8000 kwH: (196 US$ per gallon heating oil/Year).
My conclusion: The upkeep of the business as usual scenario becomes prohibitively expensive.
IF BAU is no longer the expected standard, no one will object to a medical center with 200 square meters instead of 500.

I am afraid that a lot of what we think we have saved will prove to have little value in the future. I suppose one could buy canned goods and non-perishable food with your free cash.

I eagerly waited for your response to this one. I like your no-nonsense, non delusional, approach.
Your correctness in your answers is important, and very appreciated.
I wish you the best in what is coming.
Thank you

Yes. For anyone settled in and intending on staying put, the best thing to do now with any excess cash is probably to invest it in long term improvements in upping the sustainability of the home.

If I lived on a lot with space adequate for gardening but very poor soil, I would consider having a couple of big dump truck loads of top soil delivered as an example.This would cost about three hundred dollars a load locally where I live, and probably not much more in many other places.A world class, bargain in comparision to being without fresh veggies.Labor excepted, this could pay back in two years at supermarket prices, maybe even one year.Much faster and probably cheaper than the long painful process of restoring old worn out soil or building up the subsiol left after top soil was stripped during construction.

Some durable consumer goods may get cheaper, but my guess is that real prices are as low as they ever will be for many items that will last indefinitely and might either be used or traded later.Canning jars and pressure cookers with a couple of extra gaskets come to mind first off.

What any particular person can do depends on thier own circumstances of course.
We have ample secure storage living on a farm and I packrat anything that I can get for a bargain now that may either be unavailable or very expensive later on.Chain, lubricating oil, nuts and bolts, nails,....

A good nylon parka with synthetic in sulation packed upproperly will be as good in ten or fifteen years as it is today-if the mice don't get to it.

yes supplies - and way more than you need if you want to trade.
add to that list mouse traps - betterbuilt are awesome and baitless
hand powered things like saws($2.00 each for Distons at goodwill omg!) and a way to sharpen them.
Treadle power sewing machine needles and thread.

OFM look into this for your soil, scroll down and look at the side by side comparison pictures - works better in poor soils(?)

Thanks for the link.

I am planning on running a few little experimental patches of biochar enhanced garden, maybe about six feet by six feet in our gardens and pasture this year to see if biochar helps our soils noticeably.Of course one year might not show up much but if things look greener...

I know that char works very well indeed in some soils, and expect positive results.

Bu making biochar in farm sized quantities might be a show stopper-more than likely we will never use it for more than a few thousand sq ft of garden on our place.

I haven't yet learned very much about possible strategies for bulk production.

Farmers around here have always burnt up a lot of excess wood and I have often heard the older guys remark about the excellent gardens they get on spots with lots of ashes -AND CHAR.Since it is only prudent to light a large fire when the humidity is high and rain is to be ecpected, this is very frequently the case.We concur, and almost always plant omething where ever we have a burn.

When orchardists burn the pruned limbs from thier fruit trees it makes quire a fire, and if it rains on the hot ash pile a lot of charcoal is left , which gets tilled in when the spot is gardened.

Of course the fire destroys the grass and most if not all weed seed and roots, and for the next season the spot performs really well-but there is no way of comparing the results directly to an adjacent spot where the siol should be identical simply because the adjacent spot isn't planted to garden.Also hard to say about the effects of plentiful wood ash as opposed to the charcoal.

A lot of land is degraded around here but our place is in pretty good shape,especially the areas we use for gardens and orchards.Pasture land can be (and is) slowly improved simply by grazing sensibly,meaning lightly,and using light applications of lime and fertilizer as appropriate.we could get by w/o the fertilizer but we use it sparingly and it is very cost effective so used.

I anticipate a time coming when we may not use any, but I don't get righteous about organics.

I don't really think there is much I can do for some badly eroded and depleted land that we have allowed to go back to forest.If my folks had owned it earlier it might have been depleted but it would never have "washed away".

Incidentally people shouldn't be so quick to condemn the farmers of a bygone day.Sometimes they didn't know any better, but more often perhaps they were simply doing what they had to to live from one year to the next, and had no real options in many ,many cases.

I have built a retort kiln for 55gal drum sized quantities of char.
I think there are easier ways using a 55 gal drum.
Crushing has been a challenge.
I built a very small plate crusher - works great is simple to build and can be scaled up, mine is only 1/4 hp.

making farm sized quantities- I dunno.

I have laid a fire using a dry brush windrow in our garden and rolled it every so often with a pitch fork, using a garden hose to put out the charcoal left by my feet.

I haven't found an easier way.

I find it useful to think about what money really is. It is part of the exchange and barter system that underlies all human economies. But it is only a symbol of value, not the actual value itself.

That value is still locked up in food, water, arable land, infrastructure, supplies, community, and way of life. Even gold falls into the category of money, because in its unconsidered form, it's only a shiny metal. It has value because other people want it, just like paper money. But what people need are the actual things.

So what should you spend your cash on?
* food
* water
* arable land
* supplies
* physical infrastructure
* community
* way of life

In other words, spend your cash on what you were going to eventually spend it on anyway.

Maybe also some readily barter-able items, cigarettes, chocolate, alcohol, entheogens, pain killers.

I don't claim to have THE answer, but this is AN answer.
I stopped contributing to my 403(B). I am putting all available savings into gold and silver eagles (buying on dips as close to the 100 or 200 day moving average as possible). I don't know what the future value of this type of money will be, but it's a safe bet it will have some value; it always has had value in the past. I don't have much doubt that there will be rich people in the future regardless of what the future holds, and they will probably either use (or at least value) gold and silver currencies.

The other thing is to make any infrastructure improvements in the old house. But I'm being careful with this. It's not a sure thing that I will be able to keep my house even though I own it free and clear. The reason being that I don't know just how crazy the local government will get with taxes. They are already showing signs of getting pretty crazy. If they get both crazy and desperate, it might not be possible to pay the taxes.

Bottom line, whatever wealth you can preserve will have to be in non-debt denominated assets. This pretty much rules out all fiat currencies and bonds and also excludes equities.

Good luck!

You know you can build a Roth IRA with precious metals, right? You may or may not want to do that, since PMs in the hand may be more what you want than PMs in a depositary somewhere. Still, if you aren't convinced that we're headed for Armageddon, but still think the government will botch things, a precious metal IRA isn't a bad way to store some.

A really interesting post from Gail, but surely any world economic decline will be very cyclical (as per WNC Observer's comment). I can't see how there's gonna be a one way decline resulting in the world going back to the 'lifestyle of many years ago' (presumably that comment is directed at OECD / Western countries).

Australia has began making massive invesments in LNG, China and Japan are the major customers. Australia does not have unsustainable debt, and can invest in major infrastructure. Really, even the US isn't completely swamped in debt, debt unwind to the point of an incapacity to invest hasn't been reached (yet).

Also PO is starting to look like it will hit in cycles. The TOD post just a few days ago regarding comments from the Petrobas CEO indicates an 'oil crunch' will occur by mid-decade, then ease as new production come on-stream.

That gives us vital time to do something about PO( always the optimist ). And I find it hard to believe an attempt to invest massively in alternatives and efficency gains won't be made - the Western world isn't going to go back to 'the good old days' too easy.

How can it be cyclical when it is based on rapid depletion of non-renewable resources? It has to crash some time.

But from at least some of the stats I've seen quoted on TOD, it might not be as straightforward as the world going through one big depletion episode, there may be several periods of supply/demand imbalance. Every time there's not enough oil for everybody we get hit by sky-rocketing prices, which result in recession or ecomonic slow-down, causing a drop in demand and prices .. and for a while the demand drop eases oil supply problems. And so on in a downward - but uneven - spiral. At least some of the main PO theory proponents take this downward cyclical view I believe (sorry but off the top of my head can't quote anyone)

I'm not sure if most here would agree. But many here think of it as a staircase down with sigificant drops and shorter levelings. Upward cycles not so much. Basically what Gail said. A borrowing from the future earnings based on the ability to continue to exploit the past (one time FF endowment) has always been possible before the $147 interface. The ability to blow ever more spectacular debt bubbles 'worked' only so long as cheap more abundant FF energy lasted. See 70's price/supply shortages. Much of the world is still trying to operate on this 'abundance' premise and has no idea what has fundamentally changed about the ground underneath their feet.

So this debt cycle starting with savings and loan, subprime, sovereign, and corporate debt which we are in now cannot be resolved except by impoverishing the bulk of humanity. Yes I expect it to be uneven as hell but basically w/o the implimentation of longer hours, more manual labor, less retirement for just about everyone, less energy, less food, less wealth the financial and natural systems cannot return to balance. Check out aangel's debt charts. More debt than the world has wealth by a bunch.

Try to think of what it would take for 6.7 Billion people to live on annual solar inputs and how far below the present rate of consumption that would be. What present resources would not be avalable in anything near present quantities. Fertilizers, pestisides, rubber, asphalt, much of transport, transit refridgeration, packaging, and low cost extraction of minerals are all liquid FF dependant. Then consider how unlikely it will be that such resources will be evenly distrubuted when extremely scarce.

Now consider that relative scarcity and how much of the present economic trade system will be viable. Heavy debtor nations which have few valuable trade goods and no long term borrowing power will expect to maintain their traditional life styles. Paper will not do. This is happening already as one by one 'developed' countries find they no longer have leverage to bargain for increased debt or 'needed' energy inputs. NG to northern Europe, reduced budgets (riots) for Greece and Spain. IOU's for California State employees. Defaults will come and they will cause chaos. The CDS 'bomb' will likely be the coup de gras for the world banking syastem. If not these few today then surely the looming US mega-default to come.

Lastly it's the infrastructure itself which will be in jepordy. Once societal stresses are high enough producers will begin to have more difficulty maintaining exports over long distances. Nigerian citizens who rightly sense that they are unable have a fair share in the wealth being taken out of their country are an early indicator. There are just too many long supply lines passing by too many interests for a stable organized complex system such as we now have to endure once real scarcity is the norm. And we haven't begun to talk about, complex JIT, computer controlled and highly evolved food, parts, financial and other information systems yet. And let's not even think about unwinable resource wars which hold oil supply collapse potential.

I would like to be a declinist but a whole lot depends on what smart mitigation occurs during the descent. So far we are being bombarded by so many cheerleading BAU denialists who's 'solutions' mostly appear just like more trouble. I won't take any more time to ennumerate, it's been well represented elsewhere.

We're like passengers in a car trying to drive up the exponential growth curve. We're just about vertical now and eveyone will soon panic. We filled-up the car one last time in Saudi Arabia and payed with counterfeit dollars. The tires are spinning and we're getting no traction. In truth, there's nowhere to go even if we could get traction. We all know what comes next, a slow slide down, or a tumble.

Yeah a few days ago we were talking about a trend slope and was there a common pattern. The up-the skijump thing about as descriptive as any. Finding it everywhere. (The total private , public, corporate picture is 4 times as high)

This year Government Debt to GDP on track for 100 percent Unfunded liabilities not included

Yes, that's a scary graph. I still believe not all hope is lost, the US has survived periods of large debt before. As world commodity and oil contracts are usually written in US dollars, the US is uniquely positioned to print/inflate/devalue itself some way out of debt (the politicians are gonna have to explain the drop in living standards as a result...)

But this is a worry xburb:

Try to think of what it would take for 6.7 Billion people to live on annual solar inputs

Yeah, not going to happen is it? Here in Australia we've got some pathetic renewable energy target like 20% in 20 years - and that's generally seen as a stretch. Massive efficiency gains can obviously be made, but, for example, last year's stats show the average size of a new Australian house exceeded that of those being built in the US - and those McMansions are not being designed for greenies trying to save the planet. So I do worry too little is gonna happen too late, and that's when we'll get into the 'staircase' scenario.

It's starting to look like the world may get it's first real PO crunch around 2012 / 2013, the political decisions (of lack of them) made with evidence starring us all in the face is going to be interesting...

When the renewable energy target is stated as a percentage, I always think as much about the possibility of the denominator going down as the numerator going up. With a small enough denominator, the target is easy to hit!

I always sensed there was something a little Orwellian about that way of framing the subject.

It's starting to look like the world may get it's first real PO crunch around 2012 / 2013

Agreed, depletion never sleeps. Something about the peak is it is just that, the maximum output the system can flow. Sure with a nice ww recession the tip will come off for awhile. But this demand/efficiency peak seems like an illusion esp living where we do and seeing so much profligate use. I doubt that many large structural changes have happened yet. As you say this time it will be interesting. Price still goes up just fine.

I believe ACE has some nice charts showing another supply crunch around then maybe even a bit sooner. I remember he did a very good job in predicting the 2008 runup. Not being that savy on the production side of things but it seems the recession is causing some project slipage maybe aggrevated by tight money and uncertain payback. I 'get' Export Land Model. We saw China, they are gearing up with a vengence and look configured for consumption just like the US.

The greenies LOL. Sounds like around here. We moved into a house I built awhile back to cut down on our car dependence. Real nice couple lives down the lane in a new 9000 square foot house! Northern latitudes, very high ceilings, yikes! They have the money. Where do I begin? :)

So true.
And a good poetic way of saying so.

Gail's analysis seems to be rooted in her experiences as an insurance actuary. Insurance actuaries recommend buying debt instruments to offset risk, thus there is a preoccupation with debt.
The financial companies have distorted the valuation of debt instruments. The level of total debt is now so high it is literally impossible to raise taxes enough to pay it down.
For example to pay off the 15 trillion dollar federal debt at 3% interest over 40 years would require $650 billion dollars per year in interest payments or an additional $2160 on average a federal tax increase per taxpayer.
This doesn't include huge consumer credit debt, state and local gov't debt, corporate debt, etc.

It's time to consider a policy of controlled inflation/devaluation.

Insurance companies have traditionally put most of their investments in debt. High-rated debt is assumed to be very safe.

Whilst I agree with much of Gail’s reasoning on Debt & Energy, there are also other Major/Basic factors that are also influencing current & future events.

The following factors interlock & influence each other. In past years they have risen and fallen individually and at times all virtually aligned as a positive feedback loop.

By way of explanation, the following are the Major/Basic factors, which influence the modern economy, in addition to Politics and they are broad indicators of the likely directions of Economic Activity.
D+ E + A + P+ I +C = EA

D = Debt
E = Energy (Oil & other Fossil Fuels)
A = Aging (Population)
P = Population (Total)

I = Innovation
C = Climate Change
EA = Economic Activity

But, at present and for the foreseeable future, almost all of these factors point in one direction, which is negative -
D = All time Highs & Going Higher
E = Declining Production (Oil has Peaked), Higher Price pressures & Economic stress point.
A = Now at start of Once in History Aging
P = Now Beyond Planets Capacity & within 20 years of Peaking

I ? = Massive over last 100 years, Future is UNKNOWN
C = Set to Peak on warming, before entering the next Ice Age
EA =

Regrettably, almost all of the Basics line up severely in the negative column, with the only possible bright spot being Innovation?

Therefore, on the balance of probability, Economic Activity is due for an extended period of downturn, unless some magical, unknown Innovation is about to be released?

The next 20 years, in particular, will be nothing like the last 20 years, with one major outcome being the demise of Globalization & the return of local economy!

I've seen this comment already elsewhere.

Yes indeed, and it hasn't improved with age.

I gave the commenter some constructive criticism and it didn't take.

So, what is it you disagree with, is it your opinion that -
1) The factors listed do not represent THE MAJOR/BASIC influences on modern economics?
2) My assessment of the current & future directions of these factors are predominantly negative, is not correct?

If neither of these, then what, because that is the essence of the post?

I think the problem is that the relationship between the variables should not be expressed with + signs. It is a more general relationship--including perhaps powers, and multiplication of variables, with coefficients of various sizes. So you want to express the relationship more generally as f(whatever variables are of interest, with commas between them), not as a sum.

I was instructed in 1972 by a Professor from MIT about the details of the Limits to Growth project. So for almost 40 years I have been expecting what is known here as collapse to occur.

Also I published web report in 2005 saying that Fannie Mae was on its way to bankruptcy.

However I can not see the price of oil, or for that matter most all natural resources and food, not rising at least as fast and probably much faster than the consumer price index.

If wholesale good prices fell faster, it would lead to a higher standard of living - and more consumption per person.

Because governments will perceive a need to help people meet the rising costs of food and energy, inflationary spending programs will be put in place most everywhere. If, for example, the ECB doesn't want to bail Greece out, the IMF - or even the Federal Reserve will. Has everyone forgotten that the Fed lent $550 billion to European banks just one year ago?

The end will be inflationary, and the economy will go out with a bang, and not a wimper. Only after that will we get price deflation.

So what you are saying is in terms of elliot waves, the current wave 3 down (we are in now), (deflation), followed by a wave 4 up(inflation combined with hyper-inflation), and finally a wave 5 down (deflation), which will deflate more than the current wave 3 we are in when the wave 5 finishes.

Not a bad way to put it.

I generally agree with your comment, but I am horrified at the low level of debate regarding inflation and deflation. People just do not seam to be able to understand that one can have inflation and deflation at the same time. Deflation in asset prices and inflation in consumable goods.

We've had the old Inflation/Deflation debate a few times here on TOD and generally I agree with you. There's also the 'school' used to define the debate -Austrian, etc.

My yardstick is an increase in the money supply is Inflation.

IMO, we have been increasing the money supply extremely rapidly via creation of debt for many years but this has slowed dramatically in the last few years. Only some of this increase found its way into the general economy as most of it got 'wrapped up' in assets (houses).

Governments are desperate to avoid the collapse of that primary asset value and are pumping money into the system but it is nowhere near as fast as during the period of debt creation but it probably does not have to be since a bigger % of it will leak into the normal economy and not get tied up in an asset (although looking at the stock markets gain last year its pretty clear where a large chunk of it is going...)

So to sum up, what goes up and down will probably all depends on where this 'extra money' ends up...


Where the money will end up is difficult to predcit. Money issues will get increasingly complex and (intentionally) hard to follow and predict. That is because the government (Fed + Treasury) will assume more and more management and ownership of the economy. I firmly believe this would happen no matter what party is in power, but yes, it would make some degree of difference who's in charge. But the Fed has taken upon itself a very active position in the management of the economy, and although accountable in law, it does seem to be deciding for itself what is best for the economy.

The Fed's theory is inflation works. I'm not saying it does, I'm just saying - like in the movies - follow the money.

This whole thing seems to repeat every 80-100 years (overdebted bank crisis)like the 1930s. But the 30s had no PO so is it really the same? Not ot say resource shortage are not the problem but according to cyclical theory kondratieff,etc. we just repeat this stuff again and again and resource shortages seem to not be the problem all those other times. i guess if we take a longer 250 year view we just learn after we getz through each crisis every centruy to use up more resources by new technology each time around. This might be the last time for our civilization due to real limits, unless we find something new and improved by the 2030s.

In the 2030s we will then have a new superconservative low indebted 1950s. No installment loans. Buy everything for cash, etc.

I certainly believe that there is a "long wave" -something of the order of 60-70 years as per Kondratieff.

Our current situation has been defined by the rise in Financial Services over investment in underlying resources and infrastructure and its going to bite us in the arse shortly -but we all know that don't we...

Then people will say we need to invest massively in Energy and Infrastructure and Resource Extraction (mining) and all the bits that make a solid base for the pyramid up above that all the financial stuff has been leeching off for the last 30 years and the cycle will repeat.

Only this time we have perhaps gone too far. Have too many people and demand too much of our small planet. This time even with 100s of Trillions of investment (I'm counting on this for to buy my island) there simply won't be enough of what we need to go round...

We'll see.



Interesting post, thank you.

One of the ways in which a "capitalist" market system "creates" demand, is through mass destruction, which burns away the dead wood so new shoots can spring up. This is also known, in it's most extreme case, as war.

JMG at talked about textbook timelines and the "foreshortening of history" the other day and this current episode fits into the whole can't-see-the-forest... theme perfectly.

As oil climbed toward $150 and then receded with the economy, the pathological optimists said "See, the world didn't end!" The thing they missed was that extra $100 -$200 dollars a month in energy cost had already put the hurt on the average over-leveraged US family.

The worst part of this whole "Rear-View Mirror" education is that we expect a "boom-bust-boom-bust" economy not a "bump-slide-bump-slide" economy but that's where we are headed. If the average family, business or government doesn't make the leap and change direction while they still have the "resources" they'll find themselves in a hole too deep to escape. Ask a Californian who sold out and moved out of state in '05 and one who has decided to do the same this year and you'll see what I mean.

At least there will be fewer people asking just how long they really have before they must change as they realize they are no longer a migrant but a refugee.


I'm curious about your assertion that it will likely become impossible to make hi-tech things like computers because the specialized materials that are required, either for the hi-tech thing itself, or the factory machinery use to form the materials --- those materials will become unavailable due to decline in global trade. It seems very plausible to me, but I wonder what one might do to firm up the support for this claim.

What ever happened to Leontief's input/output analysis? All his work was, I think, done prior to availability of computing resources for academic research. And what ever happened to Linear Programming? The production function in the Theory of the Firm is, IMHO, the place where real science and engineering facts can sneak into economics, and provide non-market reality. These seem to me to offer a basis for hard-science type understanding of what can happen.

My impression is that the decline of easy access oil has revealed how shaky is the intellectual underpinnings of our financial system. But ... who knows? Its almost as if we don't understand money as a concept. But we, mankind, have been using money for quite a long time. It is unlikely that a deeper understanding will reveal that money is a goofy idea - an irrational meme. OTOH, maybe we do have some very serious misunderstandings that need to be cleared up.

Quite frankly, I haven't studied a whole lot of economics, per se. What I go by is common sense.

We live in a highly networked system. Everything depends on everything else. I think one of the posts that influenced me in this regard is The Failure of Networked Systems, written back in January 2008, by aeldric, who is on The Oil Drum staff in Australia. I would suggest you read it if you haven't. With a highly networked system, the failure of one part of a networked system can have a huge influence on other parts.

I see the international financial system as a part of our international networked economy. For years, the US has been buying roughly twice as many imports and we have been selling as exports. Other countries have created similar imbalances. All of these imbalances create great stresses.

As long as everything was growing, we could pretend that eventually the imbalances would all work out, and that the debts owed one another would eventually be paid. This is less and less clear now --with peak oil, the growth really isn't there any more. It is becoming clear that more and more of the international debt will not really be paid--at best it will be inflated away. Otherwise, there will be major defaults. We haven't had experience with this, but I expect the results will be very bad.

I am afraid that with all of this kind of disruption from debt defaults, countries will stop trusting each other, and will demand that if an exporter is selling some goods (like oil), that the exporter will receive some needed good in return (like wheat). I expect some international trade will continue, but the amount of trade will go downhill quickly, because the new approach will be so cumbersome. Without a lot of international trade, it will be difficult to get all of the necessary components to make very complex, precise equipment like computers.

In some ways, our networked economy is like a computer. If it gets unplugged, it doesn't work very well. The issue I see with most of the economic thinking is that there are so many embedded assumptions in the models that no one realizes how unrealistic they really are. No one has figured out that the models essentially assume that our economy stays plugged in all of the time--the network continues to function as planned. If it doesn't we have real problems, but the models miss this point.

Any sufficiently advanced analysis is indistinguishable from prophecy, to paraphrase Arthur C Clarke. A magical 2008 forecast; too bad I just read it today. (That could have saved me a lot of losses in the stock market in the interim.)

However, re slide 14: ¨Lower demand -> lower prices¨
That can´t be right?!? The Saudis have read Hotellings work on ´scarce resource pricing´ surely. They´ll respond by shutting in enough production to support price at the $75 they want, thus not squandering their valuable oil hoard. Demand goes lower, yes. And supply too. But not price? Or am I missing something?

This is relevant because...
I´m racking my brain thinking about where to hide during the credit meltdown... Cash, yes. Maybe some gold. But I had assumed Suncor, etc would also be very good: high prices + addicted consumers = good profits.... Your analysis appears to imply no?

Technology destroys the Price System.
All the debt arguments are pointless.

Speaking of Clarke, as I was driving home the other day I remembered that his second book took place in 2010 which is today. His third book takes place in 2061 and part of it consisted of a trip to Haley's comet. I wonder what the world of 2061 will look like. I don't believe there will be any trips to Haley's comet or emergency pit stops on Europa, unfortunately.

You might also look at my talk "There is a lot of oil but . . ."

If you have lower credit (can't get a mortgage or auto loan or whatever) you get lower demand. As a result, fewer cars or houses or whatever are built. Building these takes oil (both in construction and in transportation), so this reduces oil demand. With lower oil demand, oil prices go down as well.

Oil prices don't stay up very well, because people's income's don't go up. (Se the above linked presentation.) People end up spending more for oil, food and other necessities because of higher oil prices. As a result, they cut back on discretionary expenditures or they default on their debts,. Both of these lead to recessions, layoffs, and even less to spend on oil products.

You are doing a fine job of showing the relationship between money and energy. Please continue!

Specifically I'd like to comment on slide 18. Energy decline is already having a negative impact on the education and training needed to maintain the pool of engineers and skilled workers who build and maintain industrial/technological civilization.

Britain is a case in point (although we'll be seeing this worldwide in the near future). For example, the news media have carried many stories lately about the severe cuts to be made in university budgets. Another example is this article:
Here you can see panic over the loss of engineering skills.

It takes a lot of energy to educate and train people to do the jobs needed by modern societies, but with energy now much more expensive than it was just a few years ago, our ability to educate and train them in sufficient numbers is already compromised. I assume this is what you meant by "expertise," but I think the problem will be more serious than getting skilled workers from around the world -- we will have problem enough just fostering a pool of home-grown engineers and skilled workers.

I very much agree...look at what's happening in California, where I suspect that an increasing number of young people are being priced out of the UC public university system, because they just won't be able to take on the level of debt that society deems they should...meanwhile, expect the pensioners and public employee unions to do just fine after all manner of bailouts and accounting tricks. Just one more example of the center being preserved at the expense of the periphery (until it can't).


Gail I've sent this post out on my RSS feed because I thought it captured the forces at play in Peak Everything very well. And the inclusion of credit as a resource is very welcome. But I am not as enthusiastic about the predictions in your post, nor in the comments. And frankly I think the talk in comments of going back to horses and mules is just plain silly.

Given that predictions are just guesses, and that any situation as complex as this one will have unforeseen consequences, here are some observations on life in a world that's unwinding the credit and resources mess:

Just as Peak Oil does not mean "no oil," Peak Everything does not mean no topsoil, no water, no copper, no cars, and no computer chips. It does change the pricing but also the value of things.

So while it may be more expensive to produce computer chips, their value might go up in a way that ensures supply. And in the special case of computers, there is a long-term trend to lower cost and lower power requirements. Nowadays telephony is based on computer technology, and while its easy to see certain types of hardware may become non-competitive, there are many new technologies in the lab waiting for favorable market conditions, screens come to mind. We have had instant trans-Atlantic communication since 1866 and I doubt that global communication will end, even after a huge collapse in the economy. I can think of lots of arguments to bat around, but the best, I think, is to look the non-monetary value of cell phones.

I read that all over the world in the poorest and most dysfunctional countries, the first tech gadgets that people want are DVD players/TVs and cell phones. The laborers I used recently on my house in the USA all had a cell phone, and many of their children have cell phones. So I think theres a powerful argument to make that the value of telephony is very high, even for people at the bottom of the ladder. The value for business is inarguable. ( disclaimer: I work for a network switch maker in the telephony biz)

So I think that things with high value will survive shortages and price increases.

Looking at transportation, it's obvious that a rise in oil price will impact shipping. But it's local shipping that suffers the most, as its the most inefficient form. For global shipping of small consumer items, there is almost no shipping cost at all, no matter what the cost of oil. Plus, seagoing ships have not gone through a cycle of increasing fuel efficiency, so there is more elasticity in their pricing than for trucks. But trucking might be in for big changes, especially loads that can't be reduced in size and weight, like raw materials. For instance the cost of being far from a rail-head might suddenly go up, and there might be a painful shipping premium on the size and weight of goods. OTOH trucks might slow down to 50 mph and implement some efficiency modifications - so betting on advanced diesel makers might be smart.

In agriculture, some commenters predict an end to tractors. Since tractors are essential, I'll bet just the opposite - they endure and driving a big truck on errands passes away. I wouldn't be surprised to see farmers powering tractors with syngas, or home-brewed ethanol for niche applications. I would expect that the farmers who drive 100 miles to my local farmer's market cut back. And maybe those awful pig-manure lagoons will have monetary value.

I do see some truly distressing results from The Peaking - in politics. Recently the demagoguery over trivial underwear terrorism is derailing attempts to improve various systemic problems. And I wonder if there isn't some causation hidden in the coincidence of the ongoing Reagan Revolution coming on the heels of the 70's oil shock. I am no expert, but I see no likelihood, outside a temporary bubble, for employment to improve much, and if it gets a lot worse, or we have a long stagnation, it's easy to argue that Tea Party-like groups will gain power. If so this means immigrant bashing, race-baiting, and pro-evangelical pols will get even more power. I can imagine desegregation unwinding, and schools denying non-citizens. These Luddite groups traditionally oppose science and technocracy, so they will make the public situation worse.

My best point is that we do already know something about how societies work when resources are not plentiful. We just have to look to the third world, where jets and tractors and air conditioning are seen next to abject poverty. The behavior of poor people leads me to guess that personal transport will not go away, it will just shrink away from luxury, and that personal and business communication will continue. And unfortunately it leads me to guess that resource scarcity will lead to a greater economic stratification.

Other places to look for models are the Great Depression and WWII and maybe the post war Communist economies. The unemployment, rationing and shortages then might be a bit like sustainability shortages in our future. If so I am betting on liquor, entertainment, and over-the-counter recreational drugs.

As employment and pricing models change I think we will adapt, but we may well find that democracy and community were enabled by cheap oil.

just guessing too.

As employment and pricing models change I think we will adapt, but we may well find that democracy and community were enabled by cheap oil.

USA had both before cheap oil