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Gail Tverberg: The Coming Energy Depression

user profile picture Adam Taggart Jan 07, 2018
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As most readers know, we fully agree with the statement: Energy is THE master resource.

Without it, nothing can get done.

Energy analyst and professional actuary Gail Tverberg returns to the podcast this week to revisit the global energy outlook. And fair warning, Gail warns it's quite grim.

To her, it's a simple math problem. We have too many people placing too much demand on the world's depleting energy resources. The cost of energy is rising, which we are compensating for in the short term by using financial gimmicks to make "affordable" — when all we're really doing is creating future promises that cannot possibly be repaid.

The increasing cost of energy is manifesting in higher prices (for everything, not just fuels) and lower real wages, a divergence she sees only worsening from here. This path leads to another Great Depression-style crisis from which she does not see a clear path out of:

What we really live on is what we pull out of the ground each year, in terms of oil or coal or natural gas or whatever. So what we have is just what we pull out.

Now, you accurately point out that we're making too many claims on the future using debt. We're actually doing this via a couple of different ways, which are pretty much equivalent. One of them is by issuing equity. This has the equivalent effect as using debt because what you're saying is I'll pay you dividends, and you're going to get a higher price in the future. This is simply different kind of claim on the future. Another way to borrow from the future is through government promises. While debt is the one that most people focus on, shares of stock and government promises have the same effect. They all are promising more and more future stuff. So unless we truly have more stuff in the future, we won't be able to make good on these promises.

But oil prices higher than $20 per barrel are putting too much pressure on the economy. The cost of everything goes up at the same time. You use oil to get your metals out because you're using that in your extraction process. Also, the same things that cause oil prices to rise cause natural gas prices and coal prices to rise, too.

So what happens is everything has to go up in cost at the same time. Though people's wages are the one thing that don't. So what happens is they get squeezed. They get squeezed badly, and they start defaulting on their loans; auto loans and student loans first. We probably will soon see more business loans default, too. But it's also the individuals who are getting squeezed the worst. This will only worsen as oil prices rise and as other prices rise, too.

The crisis we're likely to face is going to look like the Great Depression. It's going to look like people being laid off from their obs. It's going to look like banks closing. And it's going to be that kind of crisis.

We simply don't have nearly enough affordable energy to support today's population. This should be very disturbing to every one of us. Apart from taking increasingly desperate short-term measures to put the crisis it off a little bit, it's hard to see a solution.

Click the play button below to listen to Chris' interview with Gail Tverberg (63m:24s).

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