Inevitability of DeGrowth: Our Current Debt and Energy Orgy Can't Last Much Longer

Even though we don't know precisely how the future will unfold, we know a few things about it:

  1. Of the 7.5 billion humans on the planet, virtually every individual wants to enjoy a high-energy consumption “middle-class” lifestyle. As a generous estimate, 1.5 billion people enjoy a high-energy consumption lifestyle today; the remaining six billion are aspirants hungry for all the goodies enjoyed by the 1.5 billion—all goodies based on affordable, abundant energy.
  2. Our dependence on debt to fuel growth—more extraction of resources, more energy, more manufacturing, more consumption and more earned income to pay for all this expansion of debt and consumption—has built-in limits: debt accrues interest and principal payments, which reduce the remaining income available to spend on consumption.  Our dependence on fast-rising debt just to maintain low rates of growth eventually limits our ability to pay for more consumption/growth. When most income is devoted to servicing debt, there isn’t enough left to buy more stuff or support additional debt.
  3. The debt needed to move the growth needle is expanding at a much higher rate than the growth it generates. While growth is stagnant, debt is expanding by leaps and bounds to unprecedented levels. (Global Debt Hits A New Record High Of $217 Trillion; 327% Of GDP)
  4. Wages are stagnating for the bottom 90% of the workforce. We can quibble about the causes, but there is no plausible evidence to support a belief that this trend will magically reverse.
  5. The cost of the most valuable energy--high-density, easy to transport—will slowly but surely become more expensive as the cheap, easy-to-extract energy sources are depleted, notwithstanding the temporary boost provided by the fast-depleting wells of the fracking “miracle.”
  6. There are limits on our exploitation of resources such as fresh water and wild fisheries. Humans can print currency (money) but we can’t print fresh water, energy, wild fisheries, etc. If one unit of currency currently buys one liter of petrol, printing 10 more units of money doesn’t create 10 more liters of fuel.  
  7. Creating currency out of thin air isn’t free in our system: all new currency is loaned into existence and accrues interest. As a result, all currency is a claim on future earnings. If we borrow enough from the future, and earnings remain flat or decline, eventually there’s not enough income left to support the debt service and the expanding consumption the status quo needs to keep itself glued together.

What’s the result if we add these up?

Simply put, debt-dependent consumption in a world in which wages stagnate for the bottom 90% and energy costs increase as demand outstrips supply is a system with only one possible end-point: collapse.

The Energy-Debt-Growth Connection

If we accept that energy will get increasingly scarce and costly, and real earned income for the vast majority of households is in structural decline, that means the global economy is in terminal trouble. As this chart shows, energy consumption per capita and GDP (gross domestic product, a measure of growth) are in near-perfect correlation: rising energy consumption per person is the foundation of economic expansion:

If energy consumption per person declines, so does GDP. If GDP/ economic expansion stalls, the global financial system--dependent as it is on the permanent expansion of debt and income to service that debt--has a problem.

In other words, energy, growth and debt are intrinsically linked. Analysts Gail Tverberg and Chris Martenson, among others, have been discussing the causal connections between energy, debt and the financial system for years. Here are recent examples of their work:

- The Looming Energy Shock (PeakProsperity.com)

- The Next Financial Crisis Is Not Far Away (OurFiniteWorld.com)

Simply put, the extraction of fossil fuel energy and the development of alt energy on a vast scale both require an equally vast expansion of interest-accruing debt, both to fund the actual extraction, processing and transport of energy and the consumers’ purchases of all the energy-intensive goods and services that keep the economy expanding.

Right now, oil and natural gas are relatively inexpensive compared to historical peaks, especially when prices are adjusted for inflation. Broadly speaking, the fracking “miracle” (based on expanding debt) has pushed supply temporarily higher than demand. (By temporary I refer to a timeline of a few years.)

The resulting collapse in energy prices, while welcome to consumers, negatively impacts energy companies' ability to seek new reserves (exploration and production), tap existing reserves that cost a lot to extract or build new alternative energy facilities on a large enough scale to matter.

As we witnessed in the 2008 spike in oil prices to $140 per barrel, soaring energy prices crush consumer spending, triggering stagflation and recession.

The solution is a Goldilocks price structure—energy prices that are not too high (for consumers), and not too low (for producers). The problem is that as energy costs ratchet higher while wages stagnate or decline, the financial capability of households and businesses to pay higher energy and debt-service costs and expand their consumption vanishes.

Something has to give: either consumption declines (triggering structural, permanent recession) or the energy sector goes bankrupt as its production costs cannot be covered by the price of energy consumers can afford to pay.

Meanwhile, the skyrocketing debt required to keep the entire status quo glued together is sapping income, reducing the every participants’ ability to pay for future growth.

These realities leave three possible futures:

  1. Energy prices move beyond what’s affordable, and the system breaks.

     


  2. Debt service costs rise above what’s affordable, and the system breaks.

     


  3. Both energy and debt service costs rise in tandem, and the system breaks. 

Magic Technology and Wishful Thinking to the Rescue

The consensus solutions to increasingly unaffordable energy are technological: new technologies are going to make energy abundant and so cheap it’s practically free.

While it’s true that there are many alternative energy technologies in development, the reality is few make financial sense and few have the potential to scale up rapidly enough to replace oil/coal/natural gas.

Take liquid fluoride thorium reactors. The consensus is that this form of nuclear energy is reliable and safe. Yet not a single working thorium reactor is in operation. (An update on the potential of LFTR power - PeakProsperity.com)

How about all those solar power technologies that are going to make electricity abundant and cheap everywhere? Magical thinking is appealing, but the reality is wind and solar make up roughly 2% of all energy consumed globally. These could double, triple, quadruple and then double again, and they wouldn't even begin to replace fossil fuels.

Even if wind/solar became dirt-cheap to manufacture, install and maintain (in the real world, we have to measure total life-cycle costs, not just the initial purchase price), these alt energy sources are intermittent, and that's a big problem for two reasons:

1. Batteries are not “free” and current technologies rely on scarce resources (lithium, etc.)

2. Utilities need to maintain significant power generation capacity to replace these sources during night, cloudy days, when the wind decreases, etc.

This means the entire infrastructure of fossil-fuel generated electricity must be maintained--a very costly requirement.

The other problem with the “electricity and storage will be nearly free” line of magical thinking is much of our transport system can't be switched to electricity--aircraft, container ships, etc.

Virtually every optimistic vision of a cheap, abundant energy future overlooks these problems, or assumes each will effortlessly be solved with some new whiz-bang technology that just so happens to be dirt-cheap.

But not all technologies that work on in lab are affordable and not all technologies scale from the lab to production on a global scale.

Maybe some lab will invent a battery based on a cheap, abundant resource like silicon, but the process of manufacture may still be horrendously expensive, i.e. require a lot of energy and costly machinery. Even if batteries can be manufactured at a low cost, they’re only serving the 2% of total energy being generated by intermittent sources.

Technological solutions are always the "answer," but the actual costs of scaling up new technologies to offset the decline in conventional oil is ignored or glossed over.

If scaling up a new energy source bankrupts consumers and producers alike, is it a solution?

Magical Thinking: Debt Doesn’t Matter

The other line of magical thinking is that debt doesn’t matter, because future growth will always provide us with enough income to service debt.  As noted above, the structural stagnation of earned income means this assumption is no longer valid.

The next line of defense is that super-low interest rates will make debt practically weightless.  But back in the real world, we find even interest rates near zero eventually burden governments and economies. Consider Japan, which has been running a 25+ year experiment in “debt doesn’t matter.” In 2015, the cost of servicing its astronomical debt was the largest single item in the government’s budget:

 

If this is the result of near-zero .1% interest rates, imagine the eventual impact of 1% or (gasp) 2% interest rates—never mind 4% or higher.

Let’s also consider the central bank balance sheet and policy that undergirds this hyper-expansion of debt.  This is a chart of the Bank of Japan’s balance sheet. If this looks sustainable to you, hmm, you might want to dial back your happy-meds:

And what good came of this unprecedented expansion of central bank “monetary easing”? The net result is a near-zero growth stagnant economy burdened with exploding debt remained glued together, arguably rescued not by the central bank but by the collapse of energy prices and the one-off expansion of China’s economy.

These realities force fact-based observers into pondering a future that consumes less energy per person and generates less income and debt per person--a DeGrowth economy.

The status quo—highly centralized, dominated by self-serving elites gorging on a highly unequal distribution of wealth and income--cannot survive a structural decline in earned income and the resulting collapse of debt, or a reduction in energy consumption per capita.  But humanity could do just fine.

In Part 2: A Blueprint For DeGrowth, we provide the blueprint for a DeGrowth economy that’s more sustainable than the status quo, and that leaves magical thinking at the door.

The economic/political paradigm of rising energy consumption and debt required to keep the whole status quo glued together is going away.  We can’t retain the existing socio-political-financial structures of this paradigm and expect to get different results; that’s a pretty good definition of insanity.

We need new models; not just for energy consumption and distribution, but for the creation and distribution of currency and political power. The good news is: they're out there.

Click here to read the report (free executive summary, enrollment required for full access)

Science did it again. It only took 270 million years, but this week, scientists finally solved the mystery that has kept the world up at night. We finally know where octopuses come from: outer space. That explains why they look like the aliens in just about every alien movie ever made.

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It turns out octopuses were aliens that evolved on another planet. Scientists haven't determined which one yet, but they've definitely narrowed it down to one of the planets in one of the galaxies. Hundreds of millions of years ago (give or take a hundred), these evolved octopus aliens arrived on Earth in the form of cryopreserved eggs. Now, this part is just speculation, but it's possible their alien planet was on the verge of destruction, so Mom and Dad Octopus self-sacrificially placed Junior in one of these cryopreserved eggs and blasted him off the planet to save their kind.

This alien-octopus research, co-authored by a group of 33 scientists, was published in the Progress in Biophysics and Molecular Biology journal. I'm sure you keep that on your nightstand like I do.

Anyway, these scientists say octopuses evolved very rapidly over 270 million years. Which sounds slow, but in evolutionary terms, 270 million years is like light speed. And the only explanation for their breakneck evolution is that they're aliens. The report says, “The genome of the Octopus shows a staggering level of complexity with 33,000 protein-coding genes — more than is present in Homo sapiens."

Lucky for us, they landed in the water. Otherwise, we might be octopus pets.

They mention that the octopus' large brain, sophisticated nervous system, camera-like eyes, flexible bodies and ability to change color and shape all point to its alien nature. Octopuses developed those capabilities rather suddenly in evolution, whereas we're still trying to figure out the TV remote.

These biological enhancements are so far ahead of regular evolution that the octopuses must have either time-traveled from the future, or “more realistically" according to scientists, crash-landed on earth in those cryopreserved egg thingies. The report says the eggs arrived here in “icy bolides." I had to look up what a “bolide" is, and turns out it's a fancy word for a meteor.

So, to recap: a long time ago, in a galaxy far, far away, an alien race of octopuses packed their sperm-bank samples in some meteors and shot them toward Earth. Lucky for us, they landed in the water. Otherwise, we might be octopus pets.

President Trump's approval rating is rising, and Democrats — hilariously — can't seem to figure out what's going on. A few months ago Democrats enjoyed a sixteen point lead over Republicans, but now — according to CNN's recent national survey — that lead is down to just THREE points. National data from Reuters shows it as being even worse.

The Democratic advantage moving towards the halfway mark into 2018 shows that Republicans are only ONE point behind. The president's public approval rating is rising, and Democrats are nervously looking at each other like… “umm guys, what are we doing wrong here?"

I'm going to give Chuck Schumer and Nancy Pelosi a little hint. We know that the Left has enjoyed a “special relationship" with the media, but they might want to have a sit down with their propaganda machine. The mainstream media is completely out of control, and Americans are sick of it. We're DONE with the media.

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Look what has been going on just this week. The president called MS-13 gang members animals, but that's not the story the media jumped on. They thought it was more clickable to say that Trump was calling all immigrants animals instead. In the Middle East, the media rushed to vilify Israel instead of Hamas. They chose to defend a terror organization rather than one of our oldest allies.

Think about that. The media is so anti-Trump that they've chosen a violent street gang AND A GLOBAL TERROR ORGANIZATION as their torch-bearing heroes. Come on, Democrats. Are you seriously baffled why the American people are turning their backs on you?

Still not enough evidence? Here's the New York Times just yesterday. Charles Blow wrote a piece called "A Blue Wave of Moral Restoration" where he tried to make the case that the president and Republicans were the enemy, but — fear not — Democrat morality was here to save the day.

Here are some of these cases Blow tries to make for why Trump is unfit to be President:

No person who treats women the way Trump does and brags on tape about sexually assaulting them should be president.

Ok, fine. You can make that argument if you want to, but why weren't you making this same argument for Bill Clinton? Never mind, I actually know the reason. Because you were too busy trying to bury the Juanita Broaddrick story.

Let's move on:

No person who has demonstrated himself to be a pathological liar should be president.

Do the words, “You can keep your doctor" mean anything to the New York Times or Charles Blow? I might have saved the best for last:

No person enveloped by a cloud of corruption should be president.

I can only think of three words for a response to this: Hillary Frigging Clinton.

Try displaying a little consistency.

If the media really wants Donald Trump gone and the Democrats to take over, they might want to try displaying a little consistency. But hey, maybe that's just too much to ask.

How about starting with not glorifying terrorist organizations and murderous street gangs. Could we at least begin there?

If not… good luck in the midterms.

In the weeks following President Trump's decision to recognize Jerusalem as Israel's capital, the mainstream media was quick to criticize the president's pro-Israel stance and make dire predictions of violent backlash in the Middle East. Fast forward to this week's opening of the US Embassy in Jerusalem and the simultaneous Palestinian “protests" in Gaza.

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Predictably, the mainstream media chastised Israel for what they called “state-sanctioned terrorism" when the IDF stepped in to protect their country from so-called peaceful Palestinian protesters. Hamas leaders later admitted that at least 50 of the 62 Palestinians killed in the clashes were Hamas terrorists.

“In our post-modern media age, there is no truth and nobody even seems to be looking for it …. This is shamefully clear in the media especially this week with their coverage of the conflict between the border of Israel and the Gaza strip," said Glenn on today's show. He added, “The main media narrative this week is about how the IDF is just killing innocent protesters, while Hamas officials have confirmed on TV that 50 of the 62 people killed were working for Hamas."

The mainstream media views the Palestinians as the oppressed people who just want to share the land and peacefully coexist with the people of Israel. “They can't seem to comprehend that in the Israeli-Palestinian conflict, only one side is actively trying to destroy the other," surmised Glenn.

Watch the video above to hear Glenn debunk the “peaceful Palestinian protest" fallacy.

Here are a few headlines regarding the protests in Israel: 'Global protests grow after Israeli killing of Palestinian demonstrators,' the Guardian. 'Israel kills dozens at Gaza Border,' the New York Times. 'Palestinians mourn dead in Gaza as protests continue,' CNN. 'Over 50 Palestinians in massive protest are killed by Israeli military, bloodiest day in Gaza since 2014 war,' ABC News. 'Gaza begins to bury its dead after deadliest day in years,' BBC.

RELATED: Here's why Israel used lethal force during mass protests in Gaza yesterday

In each, the spoken or unspoken subject of the sentence and villain of the story is Israel. Innocent Palestinians murdered by the cruel Israelis. This is the narrative that the mainstream media has promulgated. Few have mentioned that the majority of the “protestors" that died were members of Hamas, the militant (and highly anti-Semetic) Sunni-Islamist organization that has been labeled a Foreign Terrorist Organization by the U.S. State Department.

A senior Hamas official told reporters that 50 of the 59 people killed in Monday's protests were members of Hamas, and the remainder were “from the people." So…they were all Hamas.

As usual, mention of such membership has been left out of the mainstream media's anti-Israel, pro-Islam narrative.

As usual, mention of such membership has been left out of the mainstream media's anti-Israel, pro-Islam narrative. Maybe they think of Palestinians as underdogs and they love a good scrap. Well, they aren't underdogs. But their outburst have been glorified for so long that it's near impossible to disagree with that narrative.