Mod Note (Andy): this was originally posted on 6/19/12
I was out to dinner the other night with a few friends. Each of us work in some variation of finance and have had a decent level of professional success in our young careers, on paper at least. I'm in PE, two of my friends are traders, and one is a consultant.
Despite our relatively good fortune, we all noted that we feel like we're living under a dark cloud that will never dissipate. The figurative cloud in question is, of course, the ongoing global recession.
I'm sure we're not alone in this feeling, In fact, I'm positive. The idea of a double-dip, or worse, comes up at just about every all-hands meeting we hold at my firm. Europe is falling apart, the US' fiscal situation isn't any better. There are no real signs that things will ever really improve.
Is this the new normal? Will it get better? Or are we totally screwed? I started to do some digging to see if there was anyone out there who could put all the pieces together for me to give an answer. I think I found someone with an answer.
His name is Chris Martenson and he paints a deeply troubling picture of the future using hard data.
I'm sure a few of your have heard of him before, and I'm sure a few of you have dismissed him. What I'd ask is that people hear his arguments and look at the data objectively and come to their own conclusions.
His thesis revolves around three main themes:
- A debt-based economy with a fiat currency requires perpetual growth
- Peak oil is not a theory but a fact-based reality that will lead to major economic consequences
- We have exploited natural resources to an extent where new resources are more costly to retrieve and less effective than those already depleted
I plan on diving into each of these concepts over the next few weeks and the idea of the permanent recession more generally.
In the meantime, the video below is Chris Martenson giving a summarized overview of his thesis. In it, he lays out each of his arguments and backs them up with user friendly charts and hard data. I recommend monkeys take some time to watch the video and look into the ideas.
Finally, an open question to the group. Do others have the same feeling that things simply won't get better? If you're more optimistic, why? If you agree, what led you to that conclusion? And lastly, what'll you do about it?
Yes I agree with you 100% as do many of my contacts that hold very respectable and high positions in the world of finance. This hybrid ponzi scheme world we live in will eventually bust and it's just a matter of when. We all know it is coming despite this ongoing fairytale, mainstream view that nothing bad could ever happen and that all can be fixed. It is very sad and unfortunate that to be a contrarian in this society comes with dangerous consequences like losing your reputation or and potentially a job despite being correct. This world has fucked itself so extremely bad and it seriously frightens me to hear the powers that be either have no clue what they are talking about or deliberately perpetuate this bullshit for personal gains. I should also add that I'm an avid zero hedge reader.
In the same exact spot. Not too sure of Martenson (he's one of the Zerohedge guys) - but I'll check him out. Looking forward to more. +1.
I agree with this sentiment! Not too long ago (late 90s and 2000ish), college students and everyone else in general were very optimistic. The Dow was exploding. Europe wasn't a problem. The Asian tigers were optimistic and we were optimistic about China, etc. too. People were forgoing b-school and dropping out of college to join or start dot coms. Wall Street couldn't get all of their analysts or associates from the top 10 schools, so they had to do the unthinkable and hire outside of the top 10 because all of the top 10 students wanted to get rich in Silicon Valley. Everyone could get a job. High school kids could buy stocks and multiply their money relatively easily. In 2000, "Boiler Room" came out. It personified how optimistic everyone was. Who needed college when you could get rich with a Series 7? Everyone wanted a piece of the market, unlike now when volumes in equities are dead.
Is there any hope for America?
Im optimistic, things will get better. Why? Because they always get better. Every recession there is someone that says it will be around forever, every boom there is someone that says it will be forever. But to date, this has never been the case. Plus, alternative energy + technological innovation.
The depression lasted a total of around 14 years (probably 16 to get completely out of it).... I think we could be in for another 5-6 years.
Also read Cowan's book The Great Stagnation. It looks like we might be hitting a wall with a lot of things, and the problem is much of our institutions, society, and culture is based on the notion of infinite growth.
I disagree with this...
Even if some of the mechanisms which grease the wheel are based on debt and fiat, it doesn't change the fact that we are in a capitalist system. There is a ridiculous amount of money to be made in replacing and making use of certain resources more efficiently.
I think that technological change will continue to prove this theory wrong.
Look at the S&Ps earnings per share progression over 10 years. What can explain figure 1? (http://www.yardeni.com/pub/PEACOCKFEVAL.pdf)
Unless i'm in left field, progress, in absolute terms, is still being made even if valuations got out of whack.
In all seriousness, watch the video when you have a chance, and then dig deeper. I used to be in your court, but I've seen too much information to really believe that. Technological progress is always pointed to as though it's magic. Our economic system combined with increasing scarcity of good, low-cost energy sources is going to take a serious toll (and already is, clearly.)
Again, all I'm saying is that people should not dismiss this with feel-good ideas about technological advancements and efficiencies. I'll go into more later, but I wanted to intro the subject at large first.
I haven't watched the video, however i do agree with some of your points. I don't think tech progress is a magic bullet.
My feeling is that pessimism is now much more common than optimism since 08. I'm not rooting for the other side, simply saying that we are still making progresses in absolute terms and that things aren't catastrophic. The view seems to be skewed to the extreme.
Now i am very worried about all sorts of social benefits that were poorly designed and explode without any mechanisms to correct for recessions.
Actually, it took until about 1957 for the market to reach its pre-depression high after the big crash of 1929. It wouldn't surprise me that a similar doldrum-like period existed for us again in terms of the economy and also the earthquakes that are happening around the world that affect us here - namely the eurozone.
CDSs weren't on the scene until the mid-90's....
Blaming evil CDS speculators i see.
Look up: rehypothecation.
Just look at the financial innovation that has come around just these past 10 years, yeah some of them caused the crisis in 2007, but long term they will make the market work better. We have smart phones now!!! In 2002 i was in high school and people were using pagers and people thought that was great... PAGERS!!!! Just imagine what we will have 12 more years from now. Computers just get faster and better. We will find alternative sources of energy. The more expensive oil gets the faster an energy alternative will come around. Either way im long Chevron... :D
You guys keep selling and I will keep buying...
very interesting video...makes me want to go buy gold and silver and curl up into a ball and cry.
Same effect here. Certainly making me very pessimistic about my future in Finance...
I just hope it gets better soon.................................
Peak oil (at some point in time) is a fact. Oil - and hydrocarbons in general - are a finite resource.
That said, consider the following: total proved reserves for the U.S. in 1944 were 20 billion bbl; as of 2010, this number stood at 20.7 billion bbl despite the production that occurred over that period. This is primarily due to advances in seismic technology as well a increases in drilling and completion capabilities. Decades ago, people thought it was insane/impossible to produce from source rocks (i.e. shales). Not so much anymore.
Humanity endures based on its ability to adapt. Will all of the oil be gone one day? Sure. Has every major play been discovered? I wouldn't bet on it. The only reason unconventional plays like the Eagle Ford, Bakken, and Marcellus exist is because we have engineered ways to make it happen.
Oil or not, energy is fundamental to modern civilization. I wouldn't bet against our collective ability to figure out solutions.
Yes, there may be shale oil and other similar resources to tap, but the amount of net energy you get from them is far lower than what we extract from the gulf. The amount of money and energy needed to extract and process new energy resources grows larger and larger. You need to really dig deep into this shit. It's honestly a little frightening, but it's also pretty interesting. Like I said, I hate to be one of those "watch the video" types, but I suggest you do. It's a good jump-off point and addresses much of what you posted in ways I'll fail to do effectively.
I'd go even further. It made me want to move to a farm and give up all my possessions IlliniProgrammer style.
I like Martenson a lot, though, because even though he's presenting some pretty bleak stuff, he comes off as a decent guy. Whereas a guy like Peter Schiff, who says some things in a similar vein, just comes off as a bit of a prick. To me, at least. I also think guys like Schiff are too concentrated on monetary policy at all, when there's so much more to it with regards to energy and natural resources.
Amazing find
A shitty picture is painted across the board from this video and discussion but I beg to differ that plenty of opportunities do exist - especially for those of us who will be pursuing a career in finance in the future
This is more of a psychological observation, but it's natural for us humans to project our present feelings ad infinitum. We are nauseatingly self-centered in these recessionary cycles. In the moment, we always think, "This is the worst time ever" or "it's never been this bad." We've been saying stuff like this during every economic downturn in history.
I haven't watched the video yet, but there are still ways to make money in a recession--plenty of them, in fact. Though I hear Singapore is looking for entrepreneurs...
This comment from your post resonates with me as I've been in the same situation with friends:
I haven't read the book / heard his lecture (will do so later), but am familiar with some of the themes (limits of exponential growth) from my discussion with people with hard science backgrounds (physics, etc...). As to the points you mention. Yes, nothing on earth or in a natural system can grow exponentially. This is a fact of nature / maths. At some point something within the system happens to stop it to keep the system in balance, or the system ends. This applies to the growth of bacteria and cancer cells as it probably does to energy consumption and population growth. In the human body the immune system fights the bacteria ending it's growth, or is unsuccessful and dies leaving the bacteria to colonise another body (another system) or die shortly after. If we accept this, than the two key issues are (a) how close are we to the point where the system (i.e. the world / earth) fights our growth back, and (b) can we find a balance where we control our growth and have a sustainable relationship to the world we inhabit.
Personally, I don't think we're at the endgame. While I feel that this concept has merit and is probably valid from a big picture of human existence point of view, I don't think our current situation and the way we feel (highlighted in the quote above) is symptomatic of reaching the endgame. The reason being is twofold....
First, if this was the case wouldn't we be faced with an exponential / severe decline in the growth of the economy as opposed to a muddling through? Second, we know why the US & UK economies are sluggish. It's not because of lack or resources, an oil spike, deficits or inability of the public sector to borrow. Deficits are a long term issue, but they haven't affected the ability of the UK / US to borrow from the markets (politics aside). Just look at their borrowing rates. The private sector is a different situation though as there is still a lot of de-leveraging going on and perhaps the leverage of private balance sheets has hit their exponential limit. I don't have the stats, but it would be interesting to see if they bear this out. Also, this doesn't bother me as much as we know how to deal with excess debt. The two tools are inflation and bankruptcy and for the most part they only affect who owns what, not what is owned.
Seeing as I'm in the investment / finance side of the world (i.e. I don't make anything), I eventually want to get into a role or become partner at a firm where what we do doesn't depend on perpetual growth in an industry / the world, but rather moving ownership pieces around while taking our cut. The most interesting investing that I've seen pre-crisis and since has been based on this rather than geometric growth. It would be nice to own a farm / house in the country, but in an armageddon scenario how would you protect it?More broadly, it's becoming more important to me to lead a life where my happiness doesn't depend on the growth of my income or material possessions and to be more sustainable. So more experiences and spending time with family, friends and girls and less on buying stuff. Also, when I do buy things I focus on those that will last for a long time as opposed to disposable consumerism.
Ultimately life goes on, and even if it ends all you take from it is your perception of reality... One's thoughts, imagination and emotions can grow exponentially forever, because they're not in a closed system.
I am less worried about peak oil...and more about how the US has fucked itself, as has Europe. We made promises to generations of peopole that were simply ludicrous, and now they are trying to collect.
The modern financial system is on the USD. Companies keep reserves in USD. Securities are usually dollar denominated. And our country is very close to the brink. Not because our Debt/GDP ratio is so high...but due to runaway entitlements and a nearly broken political class.
I look at Social Security, Medicare/aid, and a growing welfare class...there is no easy way forward. But the politician who promises the easy way forward will get elected.
This problem scares me much more too. And I think this goes hand in hand with the cultural decline of America. Most the folks growing up in this country are lazy, entitled, narcissistic brats that spend more time on facebook than in the library studying for their Sociology and Urban studies and Post-colonial ecofeminism etc. bullshit majors. And once they get out they want a bailout of their student loans, and free healthcare, and government jobs...there is just too many people reaching into the pot and not enough folks adding to it
Every time I read "free healthcare", in reference to Obamacare, I cringe. Do people nowadays even bother to read a bill before forming an opinion? The bill just wants to achieve what big companies achieve for their employees. Big corporations get a discount from health insurance companies by bringing them thousands of clients. Obamacare wants to have a public option. You still have to pay for your health insurance. You just do it through a public option. It is not free people. Well, it is free for families making about 15k or less a year. But we can all agree that anyone making that is royally poor. Anthony Weiner said it better in this video:
It's undoubtedly true..
A lot of well respected economists and teachers who have never necessarily been 'doomers', are coming out of the woodwork and asking whether we are reaching a point in which never ending growth is dying.
For those who work in finance and are aware of the growing sentiment, it's a tough position to be in. In one aspect our jobs are our livelihood; however in another aspect what is our livelihood if growth cannot continue at the absurd rate that we all expect?
I think the largest myth among economists right now is that debt is the cause of the slowed down growth. On the contrary, debt is just the symptom of a larger problem which is the DWINDLING of natural resources and the growing demand for these resources to grow at the absurd rates we have in the past.
And it's not even demand from the Western countries.. it is the demand from the BRICS and the oil producing nations themselves (remember Saudis get their oil so cheap that their oil consumption is growing faster than that of most countries.. another little known fact)
It's not even that we are 'running out of oil'. We are just running out of cheap oil. To extract 'massive shale' in Canada would equate to something like $200/bbl just based on how expensive the extraction methods are. And no global economy can grow quickly at these costs.
Hardcore capitalists are determined the markets will 'adjust' and alternatives will be created. While this may be true, investment in alternatives only thrive when oil sky rockets to ridiculous prices. And when oil sky rockets to absurd prices, growth slows and oil shoots back down. And then investment in alternatives recedes. As you can see, it's a treacherous cycle that can only be broken by stepping outside of the market and intervening and saying 'We need to take care of these problems now, before it's too late'.
I always thought conspiracy theorists were crazy for explaining our reasoning for 'cleansing' the Middle East and installing new regimes. However when you see our government installing new regimes in Iraq, Libya, and soon to be Syria & Iran.. it really makes you think. Is the Middle East just a global chessboard for natural resources? Why are China and Russia so opposed to the US interfering in Middle East politics? Is it that they are worried that the US will monopolize the resource table before them?
Who knows. But it all makes you think a little more about what is going on around us and what the long-term plans are for the US & the entire globe on natural resource depletion.
There is no doubt that this problem is 100x more important than the fact that the Euro may collapse due to overbearing debt. And it also makes you consider the fact that at some point, natural resources may be the only currency that matters and all these debts in the Eurozone may just be a symptom to the real problem.
Excellent post.. a lot to think about.
Just finished the video (great find btw). Thought it was on point. I think the most important thing Martenson said was about the population explosion, I think that is at the core of all of the worlds problems, and every single metric that he shows is directly, or indirectly caused by this insane population explosion over the last 40 years.
Unfortunately, population growth is one of the most Taboo subjects for any politician, media member, or average joe to touch with a ten foot pole. Which is why I will leave my comments on a very broad level.
Anybody who thinks logically about the future economy will come to the same conclusion with those 3 main points. Building confidence can handle the first point, but the last 2 points will eventually undermine that. This idea is nothing new, it is actually covered in books such as The Long Emergency and Collapse. The scariest aspect about it is the longer we wait to develop alternative energy on a massive scale the harder it will be to do so since it will require existing energy that will be unaffordable.
Even in a very long recession, and even in the depression, there are people who do well and people who llve very rewarding lives. I suggest you do the best you can, enjoy your life and let other people wallow in how bad things are...to be honest even if the economy remains soft we are all very lucky in the grand scheme of things.
Valid points from both the OP and Bondarb.
I have the same discussion with friends who are 2-5 years into their careers as well right now. Bottomline is we are all about 5-10 years if not more late to the party. It is extremely difficult to create wealth these days be it at the office or your personal account. Historically you should be taking on more risk right now and creating wealth to sustain as you move into the later part of your career but I know a lot of finance people who basically in all cash or do not trust in this market/economy long-term. The situation is not unique I am sure young lawyers/CAs/doctors would have the same reservations.
But Bondarb, makes a good point just because the bosses/co-workers may have had it easier does not mean some people will not get to the same place. Also if your worst fear is that you will not be able create wealth but collect your bonus and salary every year you are probably better off than 95% of folks out there.
Christ you people.
There is so much going on in the technology / biotech / energy sectors right now. The answer won't be from politicians in Washington or banks on the east coast, but from guys in Silicon Valley and in their basements thinking up the next big breakthrough. When there is money to be made (in this case, an absolute crap ton for whoever can figure out energy etc.) someone will figure it out (or just about die trying).
Sadly more folks in SV seem interested in making yet another time-wasting app that dumbs down society.
I think this is a lot of people's point of view. However, Martenson addresses this in the video by using the example how much time it took to switch between wood and coal during the industrial revolution, and this example can be applied to any new technology.
King, this is very interesting video, and I recommend everyone else to take the time to watch it all the way through. I have just as much faith in human ingenuity as everyone else. I believe it has infinite possibilities. However, you can’t argue that there is a finite level of resources on the planet. And I think an important point Martenson states several times in the video is that he’s not terrified of the future or thinks that it’s the end of the world. He simply believes that there is going to be a major shift, and that we simply don’t have time left to switch from one type of energy source to another without serious disruption.
Also, in reference to energy invested compared to energy produced, the comment he made about BP’s Deepwater Horizon really struck me as insane.
OK, I appreciate this thread very much because it has shown that there are very intelligent people within this website.
With that being said, what if the optimistic and negative sides are both correct? In comparison to Martenson's long term thesis, a duration of a bond is highest when..... when its 30 years until maturity. Meaning there is so much volatility in between that it has hard to pin point when the shit is going to hit the fan. Within now and 2030, we could switch to a new energy source. Like he said, exponential growth is key, so if money growth/cost grow at a huge pace, I believe technology can follow as well.
Now for the dim news. Chris Martenson is correct in predicting that oil will run out. It's like dying; it's inevitable. At this stage, we are screwed.
If time is in our favor, I believe we can change our inevitable outcome. But knowing human beings, it won't be until an urgent situation arises until something meaningful is done. Or venture capital of this stuff could be in the works and I just don't know about it.
I guess the question is whether technology advancement is relatively infinite or finite??
And his research could be totally off, if you looked at the sources of his information, they mainly came through his own research which could very easily be cherry picked to fit a narrative.
Great topic. It's topics like these that draw me to WSO. Whenever I try having discussions surrounding the European Debt Crisis or the lack of advancement in alternative energy with friends/family, all I receive are blank stares. I believe that Martenson makes excellent points, but it's difficult to be as pessimistic as he is. Based on today's rate of consumption, there are at least 40-50 years of crude oil extraction and refining. Once more, that is based on "today's rates of consumption." As technology continues to progress, vehicles, manufacturing plants, and equipment will need less energy to operate. Natural gas is proving to be a viable competitor to crude oil and is abundant in the US. Of course, the cost of replacing thousands of gas stations with CNG and LNG containers is massive!
Regardless, I still feel that Martenson's entire argument hinges on the idea that our energy production is finite. That one day (in his argument, 10-20 years), there simply won't be enough of an energy source to sustain our way of living. This implies that if a new form of alternative energy does work out, his entire argument becomes moot. Is that such a stretch of imagination? Society has always been able to innovate and technology has always advanced. Just because there aren't any promising forms of alternative energy today doesn't mean they don't exist. Big Oil is spending billions of dollars a year in R&D to tackle this issue. Simply put, imagine telling people 15 years ago that not only would every 3rd grader carry a cell phone, but that some phones would come FREE with 2-year contracts (at a time when cell phones were expensive luxury items).
Slik, I think you're missing a KEY point. His entire argument is based on EXPONENTIAL growth, so looking at "current rates of consumption" is almost meaningless. His argument is that with the exponential growth in population and stagnant growth in LOW COST TO TAP energy reserves (oil), the surplus to society / price of energy in the next 20 years will drop / spike that will cripple the world economy.
Yes, technological innovation is AMAZING, but the earth is a finite source / system. We are talking about energy here that is critical to the economy, not cell phones. Also, he addressed the point about natural gas....replacing thousands of gas stations lowers the surplus to society....yes, it could be done, but the net cost to society of a given unit of energy still spikes in that scenario if you buy is story on exponential population growth and energy requirements.
In other words, to keep up with the exponential growth in energy DEMAND in the next 20-50 years, we need an exponential increase in the amount of surplus energy we can extract from the earth. I also thought a pretty important point he made that going from oil to XYZ alternative energy source is moving down the spectrum of concentrated energy sources for the first time in our history...in other words, oil is an amazing source and we haven't found anything (yet) that we can process / mine that would serve as a placement.
This doesnt mean it won't happen, but I thnk looking at the data, it's hard to argue that time is not running out...until someone (next Einstein?) finds a away to put 1 unit of energy in and get 2 units of energy out (breaking the 2nd law of thermodynamics), I think we're pretty fucked. Either that or we're due for a major global epidemic to reduce population growth by 20-50% :-)
Happy thoughts, happy thoughts...
You've convinced me. Despite 30-40 years of remaining crude oil at today's rate, this estimate means nothing if the rate of consumption doubles over the next few years. I guess exponential thinking isn't as intuitive as it seems. Based on this data, I guess we truly are going to be looking at a new world, with a whole new perspective on life.
Of course, as a nation, Obama or Romney needs to mandate extreme measures with alternative energy and energy efficiency. Every new home built must have solar panels installed. Every new car must be natural gas/electric. Etc. Perhaps in two decades time, we have to shift to extreme measures, such as population control. This is scary stuff, but really fascinating.
Great post I'll have to check out that book.
Another way to look at it is that energy, metals, and water are all interdependent. You need metals and water to get energy, you need energy and water to get metals, and you need energy and metals to get water. The depletion of any one of these three resources results in depletion of the other two.
The real fear isn't peak oil production, the fear is that eventually we'll reach a point where we have to expend a barrel of oil's worth of energy to obtain a barrel of oil (what Stephen Leeb calls "absolute peak oil"). We'll need to transition to alternative energy sources, but developing the infrastructure for alternative energy sources requires energy and resources. Therefore the longer we wait, the harder it will be to transition because resources will only continue to get scarcer as demand from emerging countries like China, India, Saudi Arabia, etc. increases while finite resource supplies dwindle. IMO we may need a "Manhattan Project" for energy in order to ensure that we avoid a Tragedy of the Commons scenario.
Basically I just summarized what I read in a book called "Game Over: How You Can Prosper in a Shattered Economy". I'm prob going to dump my money in gold but I need to do more research...
To add: I am by no means trying to make a "woe is me" type of post. I am aware that I am very lucky, as are most of my friends, to be fairly well-compensated in an atrocious economy. I only aim to provide evidence that we could be facing a new paradigm going forward and I'm not sure that we, as a society, are fully ready for what could be on its way.
It's not so much that it's all doom and gloom, it's about being educated and ready to face a world of potentially massive change as opposed to crossing one's fingers and hoping for technology to act as magic and fix things overnight.
King -
No doubt that per bbl returns have gone down over the years as conventional fields (take the Ghawar field in Saudi Arabia for example) deplete. Many of the plays you read about in the news are unconventional and require more $ to develop. It would be interesting to see the source data behind the presentation; not saying he's being manipulative, but there are a lot of arcane classifications/definitions/interpretations in E&P that can make things look worse or better than they are.
In my view, energy efficiency technologies are the near/mid-term solution. As a society, we will need to do more with less - no way around that.
In both Italian and Chinese written language, crisis also means opportunity.
I say that I have to agree with this. If you look at the history of the NYSE (since inception), you'll see that there today's recession is not much different than the ones before. Sure, the causes might be different, but we have always gotten out of them. In fact, I think that this recession hasn't been that bad. Back in 1792, the US almost defaulted on its debt. That would have seriously fucked things up.
I digress. I think that people who think that growth will never go up again or that we are in a permanent recession are being way to optimistic (maybe even foolish, I dare say). Sometime, maybe within 2 years, maybe within 5, the economy will significantly bounce back.
And I finish my post with a great quote: "There will be a lot of money to be made coming out of this mess"
If you can explain to me how we are going to fill the energy gap over the next 20 years (assuming that we stay a capitalist society and we keep growing), I would gladly agree with you.
Until you 'solve' this problem, we're dealing with more of a predicament which we're going to have to deal with. You can't inflate your way out of resource depletion.
Rothyman, I know little about the energy markets, but are there no R&D investments in the private and public sectors tasked to mitigate this problem? Furthermore, isn't the government working on increasing the ethanol components of our gas in order to slow down the resource depletion until new technology can be fully commercialized and scaled?
(These aren't rhetorical questions btw, if anyone can answer these questions I would like to know)
Perhaps they'll mitigate the problem, but likely only slightly. Ethanol is a total joke - I've heard that you need more than one energy unit of fossil fuels in order to create an energy unit of ethanol (considering the entire supply chain).
yes, i dont think I've seen a more depressing video on the future of the world economy...probably because no matter how much we want to believe that technology will "save us", we realize this shit looks REALLY REALLY bad in 20-30yrs.
For me the key takeaway is that this questions our rationale for how we organise our societies (this is why it's scary). It puts into doubt the idea that we should be focused on exponential GDP growth and consumerism.
This is a significant cultural and ideological leap. It will be interesting to see if our economic philosophy will evolve away from the caricature of "utility-maximizing homo economicus" and start to incorporate what we know about what actually makes people happy and supports our well-being. However, nearly all of our national and super-national institutions are built around the concept that having more "stuff" is the key to "progress" and a society's well being. I don't see how this can change without some kind of a 2nd enlightenment.
A significant increase in the real cost of energy will have huge impact on Urban Economics and how we organise the way we live, our cities and infrastructure. As a real estate guy, I think it will be interesting to see how this affects the way we live in the future. Will mega cities make sense? What will our transportation systems look like? Will we see de-urbanisation and more localised production of goods and services?
I think it will be a big test of our societies ability to cope with change and how inclusive they are of the lower classes or the most vulnerable. Although even then I'm not optimistic. There are politicians who still deny climate change and / or the threat our way of life poses to the environment.
I don't think it will be just doom and gloom. Just a different kind of life. Maybe even one eventually more in-tune with our biological nature and environment as opposed to the consumerist one we live now.
If you're interested in the simple maths / arithmetic behind the exponential phase of industrial growth / population / energy consumption. This talk is very straight forward and easy to follow. Also, great bolo tie!
http://www.youtube.com/embed/u5iFESMAU58?rel=0
Like you, I'm not so worried about what would come after the 'enlightenment'. Heck, it's probably going to be good for us.
What I am worried about is the transition into a new paradigm in which 'having more' is no longer seen as a positive. Practically every citizen of this country has been beaten over the head with the idea that 'more is better' and we must evolve by creating better technology and thus use greater resources (which we will no longer have in the future).
Will those who believe in capitalistic growth so strongly go to the extent of waging war over it? IMO, they already have. I'm not afraid to say that our presence in the Middle East is almost 100% energy driven. What happens when the developing nations who want to grow as well put their foot down? My money says that China & Russia won't watch idly as the West secures a vast amount of the World's remaining precious resource. There's no doubt that both China & Russia are preparing as well. Russia is already putting stake in Arctic oil as the melting ice starts allow for further oil exploration there (checkout the Jun 15. issue of the Economist for a great story on this). And China has been stockpiling resources for awhile now. Is the Middle East part of their strategy as well? Something tells me we'll know all too soon when the West decides it's time to invade Syria/Iran.
Yeah. The politics of this is pretty disgusting, especially considering the human costs...
This guy isn't even a trained economist. Why are you taking what he says as gospel? The fundamental potential of an economy is a extremely difficult question to grasp and can't be answered just by drawing up a few dramatic graphs and concluding that we are doomed. I think most people who actually work with this stuff will tell you that the risk of a new US recession is very low.
All those trained economists thought it was inconceivable that regional housing prices could drop at the same time and actually send the US into even a moderate recession.
All those trained economists thought that Greece was only 3% of Eurozone GDP and that policymakers would set up a backstop for the other European countries and banks.
All those trained economists thought by giving banks money at almost free rates and cutting interest rates to zero would jump start growth in no time.
I could keep going but your critique of Martenson is shameful at best and you were better off not posting.
You have a totally warped view of the economics profession. No well known economist I know of, fits your description.
It's been a well known fact for a long time, that housing prices are quite volatile and that their correlation with the business cycle is significant. Robert Shiller and Paul Krugman both warned about falling house prices, which could result in a US recession (respectively in 2005 and 2006).
Regarding Greece what you say is partly true. Greece is a small economy and in itself isn't that important for the overall state of the European economy. A lot of people have been critical of the response to the problems in Greece and have wondered why additional measures to create a firewall haven't been enacted.
The last statement about interest rates is taken out of thin air. I have never heard any serious economist claim that US GDP would grow by 4 %. per year as soon as the Fed slashed rates to 0 %.
A lot of the Austrians however have repeatedly made completely wrong predictions about the economy, but for some reason you guys always give them a pass. Here's Peter Schiff in 2009:" You know, look, I know inflation is going to get worse in 2010. Whether it’s going to run out of control or it’s going to take until 2011 or 2012, but I know we’re going to have a major currency crisis coming soon. It’s going to dwarf the financial crisis and it’s going to send consumer prices absolutely ballistic, as well as interest rates and unemployment."
Not exactly spot on, was he?
Ex-chief economist of CIBC saying practically the same thing:
Your a moron
I agree however ironic 'your' statement is.
I thought this was pertinent to the idea of exponential growth:
Blankfein Sees 80% of Goldman Sachs’s Growth Coming From BRICs
http://www.businessweek.com/news/2012-06-21/blankfein-says-80-percent-o…
Not the best sign.
The cotnent of the video is very depressing. I am not sure about the numbers and his projection years of when the doomsday will come, but it will surely come along some day.
I was always skeptical about the fact that we will be able to replicate the same revolution when the world experiences a structurcal slowdown, when in fact most of the times people were starving and lived in poverty.
I think the guy is right, and the world will be mired into slow growth, political instability due to inequality, frequent wars and terrorisms, etc..
Most on this board shouldn't be as dour as they are. Sure, the current system is unsustainable and will, at some point, end. However, this is good news in three respects (especially for the younger folks):
1) Most of us don't have a tremendous amount of assets to lose in the crash (the entrenched elites will lose the most, which is why they are fighting so hard to maintain the status quo); 2) The system that replaces it probably will be more robust, allowing for a stronger foundation; 3) Once the problem is fixed, we will likely experience a protracted bull market (such as the Post-WWII era prosperity) and we will be perfectly positioned to take advantage of it.
There is no reason to believe in interminable night and depression. That is short-term sentiment that is manic- it swings from euphoria to depressed. For example, I subscribe to the Peak Oil thesis. Although exhausting natural resources, given the heightened rate of depletion, is a mathematical certainty- I have become increasingly convinced that we are not there in oil yet. The prices do not suggest a true tightening of supply. Priced in gold, oil prices are similar to oil prices in 1950- which, intuitively, seems crazy, but is in fact the case. In specie money, the balance between supply and demand has remained roughly in balance over all that time. The oil price now is largely reflective of a monetary event, not a permanent supply contraction.
Of course, it could, and likely will, get very bad. Economic historians would warn that we are likely to witness a significant war as a result of the economic unhinging. But as contrarian investors (assuming you are one), this will open the gate to a new era that will begin with very good quality companies trading at Armageddon prices- so, don't despair- prepare.
That was very informative, thanks for sharing.
Also thought provoking-
http://www.ted.com/talks/amory_lovins_a_50_year_plan_for_energy.html
Efficiency can also grow exponentially.
I would love to sit down for dinner with Chris Martenson and Amory Lovins just to hear them talk back and forth.
Really? No comments? That's a shame, I was looking forward to all your opinions.
got through about half of it - will try to watch more later.
I used to worry about this shit, but now I realize that no matter what happens; there will always be pretty girls to fuck. :)
You guys aren't thinking big enough about where energy will come from:
SOLAR PANELS IN SPACE! http://en.wikipedia.org/wiki/Space-based_solar_power
I don't think people were thinking about how petroleum would revolutionize how we got energy 200 years ago either. But, obviously, it did.
Future energy sources are a known unknown. But, we will find/develop it (or kill most of each other hoarding it, which will inadvertently solve the problem anyway, I guess).
Regarding the topic at hand, I believe the current economic system is unsustainable. That is because it requires continuous growth to work. And this growth will eventually end. Heck, our economy contracted back in 2008. Yet the Fed expanded the money supply by a factor of 3, and we are still going on with QE3. I am really scared of the dollar becoming worthless. Someone commented the status quo will be hurt the most, but I disagree. When you are worth millions, I would argue you own hard assets (houses, cars, precious metals). Sure, you had a big cash holding. But if you are smart and buy hard assets too, you will be well off even in an economic collapse. Heck, you could have a pantry to last you a lifetime, and a solar system setup to power your home. The middle class and the poor don't have that luxury. If the dollar becomes worthless, we are royally fucked. Back to depression times. I was watching the "Dust Bowl" on PBS and it was hard to believe that americans lived in those conditions not so long ago (1930s). I don't know when the music will stop. I sure hope to be ready when it does. But I know it will stop sometime. There's hard times coming up people. Sometimes I wish I was ignorant to this. But I guess it is bad to be taken by surprise when shit hits the fan.
People always seem to overrate the effect of technology in the short run, and underestimate it's effect in the long run. America will be fine. Don't get wrapped up in the doom and gloom headlines: "Oil WILL run out!" "Resources costlier than ever!" and "Debt is out of control!"
For the resources questions, let's compare it to the "Great Manure Crisis of 1894." This is a real story, and was a real issue causing the same type of panic as today:
"The main form of transportation, whether of people or goods, was by horse. By 1880 the horse population had reached problem levels. The cities functioned on horse power, literally. London (then the largest city in the world) in 1900 had 11,000 cabs, all drawn by horses. There were also several thousand buses, each needing 12 horses per day.
Writing in the Times of London in 1894, one writer estimated that in 50 years every street in London would be buried under nine feet of manure.
It seemed that The End of Civilisation As We Know It would be brought about, not by a meteor strike, global sickness or warfare, but by an excess of manure, by the urban equine." If you want more info on it, see here: http://bytesdaily.blogspot.com/2011/07/great-horse-manure-crisis-of-189…
You can either believe human ingenuity will figure our current problem out (because it always has), or live in a constant state of fear about how this time it's different. I choose the former.
For the debt is out of control problem:
What matters is Total Debt (Public + Private). Yes, Public debt over the last four-ish years has increased pretty dramatically. But in that same time frame, private debt has decreased even more dramatically. Total debt has decreased from 3.76x GDP to 3.37 GDP (pulling those numbers from memory, so they are approximate). Obama/ Bernanke's policy is/was to simply slow the overall decrease in that number (I didn't vote for Obama, but agree with this).
Social Security? It makes up 1% of our yearly GDP. A minor tweak can fix this. It's not a concern.
Medicare? It makes up about 5-6% of GDP. That's the real problem and will take some hard decisions, but it's not dire. Paul Ryan was right to emphasize this.
Just saw this. Peak oil is not even remotely an imminent threat to the global economy. Supply v Demand will make newer technologies more economical in the future. That's how it's worked the past 150 years or so. The U.S. projects to be effectively energy independent within our lifetime.
My biggest concern is socialism when government's only solution is taxation to bribe the voters. It destructs the long-term growth. Ironically, it was Karl Marx to coin the term "commodization" and start the "capitalism relies on constant growth" idea. I like the term*, but I absolutely disagree how narrowly the idea of commodization is defined. Future progress will be idea-led, not resource-led. What ideas does a society where government gives you all incentives to be a bum and live well produce? Lack of entrepreneurialism and research are the real obstacles.
A family friend who was once upon a time a city big shot put it very eloquently. "Don't worry, in ten years you'll see a bubble twice as big as last time and after that a bust even bigger than this one"
It fascinates me to hear USAs discuss the right to basic healthcare; as if they're talking about buying iPhones or general consumption.
No one really disputes the right to healthcare; it's just how it can be achieved that causes all the sticking points.
On the "practical", philosophically pragmatist/utilitarian side of the issue (i.e. "I don't care about ideals, I just want to do what works"): - where would healthcare be today if every government in the developed world had enshrined - and kept true to the promise no matter what - free, tax-funded, government-issued healthcare to all citizen? - how much important biotech and other medical breakthroughs (beyond simple mechanical issues like surgical procedures) have occurred in the US vs countries with government-controlled health systems? - on a broader scale, what % of important technical innovations have occurred in the US and the British Empire since the Industrial revolution vs. in countries without a setup that broadly ensured the "right to the individual pursuit of happiness" without too many brakes on success? And this when the latter pumped untold amounts into such research?
Yeah, I think the problem in this country is that people are weak little schoolgirls just scrounging around for handouts and alms. People need to man up, sack up, and grow a pair. Have a nasty gash on your arm with blood gushing out like Niagara Falls, but no health insurance to get some stitches from a doc? No problemo. Just do-it-yourself using a paper clip, dental floss, and paper towels. Quick, simple, and still have time to watch some hoops.
Define "people" and "the right to healthcare".
I talk from experience, unfortunately. In my native country, I have seen 70% of the hospitalizations in my family result in potential accidental death, or lifespan shortened by several years or decades (in one case) due to major professional errors. As employees of the state they were impermeable from liability; with no accountability comes institutionalized laziness. In that country, there are no GPs anymore in many regions as the state-fixed salaries put their purchasing power on par with street sweepers; those that are drawn to come work come from countries where their training consisted entirely of online videos, and are hopeless dealing with human beings.
Yet, I do think the debate is ideological. You Americans perhaps no longer realize, but your ancestors were the first men to truly free themselves from slavery of one form or another by other men, inspiring revolutions globally and modern civilisation. Today's changes, including free healthcare (for which Obamacare is just a first step, which in my European experience has NEVER been reversed) are swinging back the clock, putting a generation of bureaucrats in the place of former kings. The first step is the hardest to take, but if you concede the moral point, the rest is only a matter of time and practicalities. "The issue is not whether I should give a beggar a dime. The issue is whether I do or do not have the right to exist without giving him that dime."
The fact that not a single person on this US-centric board has raised this point is quite worrying. These ideas are now longer even discussed today, when they formed the very heart of the American Exception. As a foreigner, I once dreamed of gaining a US passport, willing to even serve in your Armed Forces to obtain it; today, I would hesitate to accept a green card.
For the record, I'm a free-market guy, and I'm not in favor of government control of healthcare. But I also believe in basic human dignity (that isn't given to us by the state), and basic human dignity means having access to healthcare. I think the private sector, truly free marketplace (not the distorted mockery of "free markets" that we have now in the US) is the best option.
The fact that a "right" to something is automatically associated with a favor given out by a government is the real disturbing trend here.
We're in agreement, EURCHF. :)
I'll just add: my first question, "where would healthcare be today" should have said "had governments enshrined free healthcare for all in 1900".
"Basic human dignity" is why I refer to the 1900s. A billionaire at that time could not save his dying son of TB, yet today a miner can survive cancer at 60 if he chose and paid for the right insurance. Today, a McDonald's worker for life can expect to die in her 70s (as her husband and children), never miss a meal, own a reliable and fast vehicle, a fairly large house with A/C and running water... all because previous generations didn't apply the brake too hard when this was not the case, despite attempts by the likes of the Fabians and FDR to do so.
Today's "poor", in the developed world, have more "dignity" than ever precisely because they never got any handouts (inequality is also the highest ever - is this a bad thing?). To really understand this, check out Lee Kuan Yew's "From third world to first" for a non-US-centric perspective.
From the point of view that any individual should have the right to purchase any solution to his problems he can afford, we are indeed in agreement (semantically, I do prefer "think" to "believe" - do you merely "believe" in that trade you recommended to your CIO yesterday?).
Wow. Where is this mythical place you describe?
I love hearing about this mythical USA where the private sector provides solutions to all problems without relying on any government funded research or infrastructure and without deference to the public at all. Where markets are "free" and "efficient" at the same time, because externalities are never negative and the conditions for the "perfect market" are always present and all of the model assumptions in our eco-101 theory hold; a mythical place where Information is always symmetrical, especially when it comes to medicine, healthcare and insurance.
How do people live in this mythical place? How do they care for their poor and people who cannot afford to treat their illnesses or physical traumas? How do they care for the poor of their elderly? Do they care, in this mythical place you describe?
Does this mythical place have a modern state? Do they fund basic science research, which healthcare depends on, and how? What approach do they take to their environment and how it affects people's well-being?
I haven't been to this mythical place where industry can exist without the modern state. Can you show it to me on a map? Maybe send me a link to their website? Does the internet exist in this mythical place?
P.S. Deciding when you use markets is not amoral. We do make a moral judgement when we choose not to differentiate between access to treatment for diabetes and access to the latest iphone by advocating that this access should follow the same market-based standard. Markets are not beyond us asking 'is this right or wrong'.
It is interesting to me to see how different societies, and groups within societies, approach this moral decision.
P.P.S I didn't mean to be polemical about this, I just wanted to highlight alternatives to the previous posts.
Who is "they" in "do they care"? What colour trousers do "they" wear, as Milton used to ask?
Check out Singapore for an example of this mythical place. If you do not know about the place beyond the usual cliches though, check out Lee Kuan Yew's From Third World to First and have a chat with a couple of Singaporeans, and a health insurance company, about the healthcare system and the price of various items within it. And then wonder how a food delivery person earning 1000 dollar a month can afford to get decent treatment worth millions over several years for something like leukaemia completely off the "private" sector (to the extent that the savings for basic health is compulsory for PRs and citizens, it is not "free", but you are free to choose your solution and extra stuff, and the providers free to provide it).
Milton, as in Friedman? While I haven't read his opinion on this particular topic, and am not eager to put words in his mouth, I doubt that he would approve of making insurance compulsory which it would have to be in order for everyone to have access to healthcare. What happens to people who cannot afford insurance, because of their poverty or of their riskiness (genetic predisposition, old age, pre-existing conditions, etc...)? The poor, the homeless and the impoverished elderly?
There is no free lunch. A market clearing price will always leave people who cannot afford the service without access. There has to be some wealth transfer in order to give the poor access to healthcare. We can debate whether to do this through taxation, a dedicated ring-fenced fund, higher insurance premiums due to insurance that covers everyone, including those who cannot afford premiums, or by other methods. Or, we can decide that we don't want to undertake the wealth transfer. That does mean a choice between our incremental consumption and poor people receiving healthcare that treats their illnesses. This is a moral judgement, I cannot see how it is not. That's why I find it interesting when people talk about it as if its the same kind of decision as discussing what type of phone to buy.
Not that this discussion matters. The correct strategy for gaining power under social democracy is to increase the percentage of the voting population who needs your government services. Past a certain critical mass you are assured most elections, whilst watching your political opponents mumble towards your position giving your ideas more legitimacy and ensuring re-election regardless of candidate quality (cf. Hollande getting elected in France). Compare Barry Goldwater's speeches to Romney's.
It is VERY hard for people to vote themselves out of needed benefits, no matter their stated ideology, especially in today's instant gratification, cannot tolerate any pain culture. I've been close to death a few times, and every time what went through my head is how much I would be willing to give up right now to be able to live just a few more hours. Also, if you are a 60 year old retiree living a comfortable middle class lifestyle in Florida, you're not going to think "my hunger for more handouts to improve my lifestyle is going to bankrupt my country and is destroying progress in health sciences whilst showing a terrible example to my grandkids who will have to pick up the bill anyway". You're going to think "well, I paid my contributions all my life, and they were bloody high, time to collect a lifetime's worth of hard work, plus, it's not luxury, look how that banking scum in New York lives". If you are skilled, you can also make sure the right politicians go forth, enabling you to get pity from younger generations so that they willingly part with even more cash to ensure your comfortable lifestyle, usually by focusing on anecdotal evidence about "thousands of poor and disadvantaged like Conchita aged 64, living in the Bronx/Chicago/Detroit, dying of [treatable disease] because she has no health insurance" etc.
Thanks to Social Security, Medicare, class action cases and a screwed up government-structured, local-monopoly insurance system (a fun exercise is to pretend to be a, say, German or Thailand resident and getting online quotes for health insurance for various world regions) millions have also been priced out of healthcare and are prime for picking. Look at the Florida vote! This is the new normal. As government policies, market inefficiencies, and culture increasingly create larger groups of "disadvantaged" advancing hand first towards Washington, we can expect more Obama, more European style legislation, higher taxes, etc. which is the subject of this thread. And we can't fight it, because the people voting these guys into power are desperate for the handouts, and will blank out any longer term focused argument.
I saw it happen in my native country, in several other EU countries, in the UK, and even in Australia. I am seeing it happen in SEA, too. Indonesian politicians actually bribe voters by promising them free rice...
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