Comments not related to oil or natural gas production in this thread please. Thanks.
101 thoughts to “Open Thread Non-Petroleum. April 3, 2025”
Globally now that we know what the tariffs are going to be. Central banks will be cutting interest rates even more aggressively than they already have been to soften the blow.
Not that it really matters if they cut rates but that is what they will do.
I personally know of in my neck of the woods. 5 companies from Canada and 3 from Mexico are looking for space to move their business into in my local area. That part is happening. Without any thoughts of will there be plenty of cheap energy for years, decades to come.
And banks will finance these moves without any thought of energy. From a Eurodollar perspective that means a ramp up of dollar denominated loans. A weaker dollar. For a little while at least.
Just know that all the added debt that will be required to move production back into the USA will require even more debt to be repaid. We going to need exponential loan growth.
Better hope that the shale oil and gas production continues to grow otherwise we will have a problem. Might be able to address that problem for a little while by banning oil and gas exports.
We will hear all kinds of crap spewing out of all kinds of places. Like a dollar confidence crisis from a particular German bank who just so happens to loan out massive amounts of dollars.
They need the dollar to go lower so all those dollars they lent out can be serviced. But what they are going get is a rising Euro even while the ECB is cutting interest rates. While their internal economy in Euro terms slows and contracts.
“The world does not really have an energy shortage.”
Not yet. Peak fossil fuel combustion will occur in the next decade and much of humanity could survive in a world that used half as much energy (or less)…if it was used for important purposes targeted at basic survival and in a somewhat equitable distribution (Good luck with that). ‘Incompetence’ and cruelty in human behavior is an integral and permanent part of the equation.
Affordability of, and physical constraint on access to, energy will become a big problem for much more than the couple billion who struggle mightily with it now regardless of the global supply numbers.
Agree with your concerns on soil and water, wholeheartedly.
Peak fossil fuel combustion will occur in the next decade…energy will become a big problem for much more than the couple billion who struggle mightily with it now
Well, after reading many of your comments, I’m still puzzled. Many of your comments seem very sensible to me, yet comments like the above don’t make sense to me. What do you think the impact of alternatives to FF?
‘What do you think the impact of alternatives to FF?’
Nice for those who deploy plenty of ’em, and learn to live with much less energy.
Nonfossils will delay the combustion peak maybe a few years, and maybe even lower the global peak emissions a little. On a graph it will look like stretching out the curve to a some degree.
Humans burn stuff, and there is still a hell of lot to burn.
Fossils still account for roughly 80% of primary energy consumption.
Lets talk when when it gets down to 70% sometime in the next decade (maybe).
I know I say things that you find unpleasant to swallow. And
I know you are itching to instruct me/us about how it could be different.
I’ve heard the story. We’ll see what comes….well some will.
The reality of heading up toward 3 degree C heating is what catches my attention.
I think climate change is far more dangerous than PO. And, that misinformation about FF is one of the political strategies employed by the FF industry to prevent change, to prevent the necessary transition away from FF.
The reality: FF is not necessary. FF is expensive, unreliable and polluting. Most FF applications can be replaced with lower cost alternatives right now. Some alternatives are not cost competitive now, but will be later. And a few may never be cheaper than FF until you price in the cost of pollution. But the *overall* cost of alternatives will be lower than the cost of FF even without pricing in pollution and the other external costs of FF.
The idea that FF is necessary in the medium and longterm is just propaganda. I know that’s unpleasant to swallow for people in the FF industry but….
Nick, this is one of the most ridiculous statements you have ever made…
“The reality: FF is not necessary. FF is expensive, unreliable and polluting. Most FF applications can be replaced with lower cost alternatives right now.”
You think FF are not necessary, really? With 8.2 billion people on the planet, if we stopped using FF tomorrow the world economy would crash into anarchy and chaos tomorrow. No more solar panels or wind turbines or batteries or nuclear power plants would ever be made. Civilization would be toast overnight.
FF are totally necessary for modern civilization to exist, despite the climate damage, species loss, endocrine disruptors, forever chemicals released into the environment.
We humans have a choice, stop all the damage right now and collapse civilization overnight, or continue with civilization and destroy the environment, climate and most other species, while collapsing civilization a bit later.
By lying to ourselves that magic and fairytales are possible we have chosen the latter, as we live for the now on average….
Hideaway, yes of course Nicks proclamation is just silly.
You said- ‘We humans have a choice, stop all the damage right now and collapse civilization overnight, or continue with civilization…’
I really don’t think that is realistic either. Its not a choice that humans can make. Its not in our nature to go into a state of rapid retreat. Or even to retreat at all.
Economic and population contraction will happen to us, but not willingly. We will fight to the last lump of coal and the last tree to keep the bulldozer moving.
People will put energy (and food) supply over environmental health every day of the year. All the way until they are left standing on earth burnt to a crisp.
If you look at human history energy is a very cynical business.
The goats are not needed now, because we now got cows and oxen that can provide more milk, a bit more meat and also the oxen can pull the plow. They can feed of straws from the fields, and if not so, just for a fraction of the food needed for humans. Let us cull the goats. And if you look at more recent history pigs are great for meat production, but only when the energy surplus elsewhere makes this a good proposition due to demand.
What can be argued for is for a somewhat egalitarian society where you organise for 70%+ of the experienced value, with only 20-30% of the “useable” energy expenditure where it is possible. That is the conservation mindset. If not, we are going to experience a wealth gap where something eventually is going to break. Arguing in absolutes does not really help; like we are not going to run out of energy, the universe is infinite etc. Energy is in the end measured in useable energy and the business overall could be characterised as pretty ruthless.
Currently there is plenty of oil, also oil and gas are easily transported. One tanker can supply a country like Portugal for a week. Road tankers easily transport petrol to all the petrol stations.
Portugal has been having severe droughts over the last few years, not just in tourism areas. Providing water so the crops don’t die has huge costs.
Supplying additional water for crops which previously had enough rainfall for free will have major impacts on costs of food. Supplying desalinated water for people to drink is one thing, irrigation of crops is something else.
Reading about droughts and also aquifer depletion around the world, I am sure we are close to peak freshwater and food. If humans did not spend $2.4 Trillion on killing each other then these problems could be sorted but it would take most of that money to do so.
President Donald Trump’s massive tariffs announced on dozens of nations Wednesday were pitched as “reciprocal,” matching what other countries charge the United States dollar for dollar, even taking into account non-tariff barriers like value-added taxes and other such measures.
But the actual calculation the Trump administration used is not reciprocal at all.
Matching countries’ tariffs dollar for dollar is an incredibly difficult task, involving poring over each country’s tariff schedule and matching a complex array of products, each of which has a different charge for any variants.
Instead, the Trump administration used quite a simple calculation: the country’s trade deficit divided by its exports to the United States times 1/2. That’s it.
The calculation was first suggested by journalist James Surowiecki in a post on X and backed up by Wall Street analysts. The Trump administration later confirmed that was the calculation it used.
For example, America’s trade deficit with China in 2024 was $295.4 billion, and the United States imported $439.9 billion worth of Chinese goods. That means China’s trade surplus with the United States was 67% of the value of its exports — a value the Trump administration labeled as “tariff charged to USA.”
Time is ticking for China. I have no doubt they’ll do everything within their power to keep internal coal production and consumption at or near today’s levels.
Which gives them about 20-25 years of coal left. Coal mining happens 24/7 365 days a year. I don’t think anybody or any combination of countries could ramp up coal production then export it to China to keep that going.
A lot of talk of China doing land grabs via war. Well they have a limited amount of time to do that as well. If that was the actual plan and not just talk.
China actually banned foreign investment in the USA in response to the tariffs. So they won’t be moving any factories to the USA.
Net result will be less dollars flowing into China and less dollars flowing out of China because they won’t be importing as much. Which means every country they import raw materials from will be receiving less dollars.
This is a problem for Eurodollar banks that have loaned out dollars.
T hill to DC: Also perhaps by your own understanding of how tariffs really work?
T, It is no mystery how Tariffs really work. A certain percentage of the estimated price of the imported product is added to the total price. That percentage goes to the federal government of the importer. The importer then adds that percentage to the retail price of the product. The public consuming the product pays that extra percentage. It is basically a tax. The retail price of every imported product is increased by the amount of the tariff. A fifth grader could understand that.
Dennis wrote: These Trump people really are not intelligent.
That much is obvious. Tell us something we didn’t already know.
Trade wars are not going to be good for food prices-
“Globally, 25 per cent of food production is traded internationally. Today, nearly 5,000 trillion kilocalories are traded daily — more than double the amount in 2000”
Groan, is there anything humans aren’t fucking up?
OXYGEN IS RUNNING LOW IN INLAND WATERS—AND HUMAN ACTIVITIES ARE TO BLAME
“Rivers, streams, lakes, and reservoirs aren’t just scenic parts of our landscape—they’re also vital engines for life on Earth. These inland waters “breathe” oxygen, just like we do. But a new study led by Utrecht University researchers shows that we’ve been suffocating them during the last century, an era also known as the Anthropocene. The research, published today in Science Advances, reveals that the way oxygen is produced and used in inland waters has dramatically changed since 1900. The culprit? Human activities.”
Sad as it is, I’ve learned through Catton that this is all part of a perfectly natural process of ecological succession. All species alter their environments to the point that they will not support their populations, thus paving the way for the next species —
–cockroaches.
Did Trump just come to the realization that it is ultimately the US consumer that pays for the tariffs we place on other countries? I’ve come across stuff that makes me think that Trump used to believe that if the US places tariffs on another country, it is that country (or the exporter from that country) that pays the tariff to the US treasury.
I’ve done google searches and asked my computer this question, and the answer seems to be that Trump used to believe that the exporter pays the tariff. I have to believe that after all of the uproar since his tariff announcements, he now understands how tariffs actually work. I’d appreciate any insights on this.
I think ultimately the tariffs will be softened by currency depreciation. Not the dollar. But other currencies depreciating.
For the most part as hard as markets have been crashing. We haven’t seen a rush into the safety of bonds. And that is everywhere not just in the US.
Stocks have lost all their gains since January 2024.
Which if you’re a CEO what do you do here? You got two choices. You either do a whole lot more stock buybacks or you’ll start looking to cut costs by cutting the head count.
I’m leaning towards them doing a whole lot of buybacks. Maybe I’m wrong.
Also the banks are on the hook. They loaned the money to do the stock buybacks in the first place. I’ve said before that it will eventually come back and bite the banks. But I think everything will be done here to right the ship because the banks are on the hook.
Every crash is a buying opportunity. Unless everything is going to zero and the doors are shutting.
Long term since debt requires expanding energy and debt to be repaid. Yes everything will head towards zero and the doors will be shuttered. I don’t think we are quite there yet though.
The dollar’s value is determined in the Eurodollar market not by the treasury secretary or the Fed.
Are dollars being created in the Eurodollar or not. Are dollars becoming more expensive to obtain. Does it take more collateral to obtain dollars. Are foreign governments having to sell dollar denominated reserve assets like treasury bonds in order to obtain dollars that banks just don’t want to provide. These are the things that determine the value of the dollar.
Energy and the dollar are directly related. As long as energy is available. Loans will be made to put that energy to use. Debt expanding and loans being made is dollar negative. And the opposite is positive for the dollar.
Sure when Japanese investors sell a bunch of US stocks the dollar will go down. But that isn’t the end all of what determines the value of the dollar. That is just carry trade unwinding.
The dollar dwarfs the yen in trade and finance. And when the dollar carry trade unwinds everything including the so called safe haven assets like the yen and Swiss franc, gold and even treasury bonds will get smoked. Everything gets sold in order to service that dollar denominated debt.
You’ll know it’s serious when the safe haven assets get smoked. That’s why I’m not that concerned with the recent market crash.
Is the potential there for this to turn into something bigger than it currently is? Yes. But that isn’t my base case scenario.
I think this crash gets bought. And until I see reason to change that way of thinking. My base case will remain that this is just another buying opportunity.
The strength of a currency, just like with most other things in life is multifaceted.
Government fiscal and central banks monetary policies play a role. Eurodollar is another factor among many for the USD. I think Trump has mentioned a few times he wants a weaker dollar, obviously the reason is to balance the trade deficit to increase US exports. I don’t think he will achieve this in the near term but it is possible for the government to implement policies to make the USD weaker.
When do you expect safe haven assets to get smoked ? I can see a possible gold sell off due to margin calls if the market continues to drop, it actually might’ve happened to the silver market on the back of Fridays session. But Yen or Swiss Franc, not so sure, though it is possible if investors begin to see the USD as a safe haven.
It’s not that the dollar is a safe haven. It’s the fact that the debt unwinds. And most of the debt is denominated in dollars. So everything under the sun gets crushed in order to service the debts.
If credit blows up here then this will become a more serious problem. I don’t have a timeline. I’m just watching with an understanding of what has to happen to turn this into a bigger problem. And I also understand the ramifications of what happens if indeed credit does go up in flames. Not my base case scenario.
Maybe in a long term view it’s my base case scenario. I just don’t currently believe that is where we are now.
Need to see energy shrink into some sort protracted contraction to see credit freeze up and freeze up for good in my opinion
HHH,
Can you elaborate on what you mean by debt unwinding ? You mean the private debt held in USD ? What assets ?
Well we don’t need an end of the world scenario with energy scarcity to have periods of economic turmoil, look at 2008. There was plenty of energy available, but credit was expanding exponentially into speculative assets. The liquidity crisis which unfolded nearly froze the whole global economic system.
Also the Fed and the rest of the central banks will be stepping in shortly if things continue going south.
That doesn’t mean money printing. That means a collateral swap. Moving the underwater assets onto the central bank balance sheet so they don’t have to be marked to market.
So the banks and possibly some hedge fund this time around will have their balance sheets cleaned up. The reason banks, hedge funds are willing to take on massive amounts of leveraged up risk is because they know they be bailed out. Because the collateral chains will be like dominoes falling across the globe if they don’t.
But even with a cleaned up balance sheet you need an expanding energy supply to really ramp up loan creation. We will never be able to leave QE for very long without currency providers or loan creators going bust. And this temporary fix has a shelf life. There will come a time when QE may clean the balance sheet but lack of energy makes it where these balance sheet don’t expand regardless of being clean.
Capitalism ended in 2008. We have cronyism now.
To elaborate what I mean by debt unwinding.
I mean dollars are borrowed into existence. You are borrowing dollars and buying everything with those dollars.
Because of the interest expense on debt way more dollars are needed to service the debt than are dollars available to service the debt.
So you need constant expansion of the money supply via loans made by commercial banks or else that debt is unplayable.
The debt unwinding is the selling of the things you bought with dollars in order to get dollars to service the debt that you incurred by borrowing dollars.
In two words what we are talking about is a dollar shortage.
The end game is the value of the dollar goes through the roof and the value of everything else crashes.
The main difference between wealthy people and average people is the ability to borrow money.
What I can tell you is that most wealthy people have a huge amount of debt. And those that do have a huge amount of debt will no longer be wealthy as this plays out.
An for the record I don’t agree with the bailouts. I think Blackrock and the Citadel and the rest of them along with all the banks shouldn’t be bailed out. But I also understand what happens if they aren’t. But it doesn’t matter what I think. All that matters is what will actually happen.
What is likely to happen shortly. As soon as next week is the corporate buybacks resume after the quarter ending 2 week blackout period is over. And it’s likely that the CTA’s jump in on the momentum change. It’s likely that the passive inflows from retirement funds continue.
HHH,
Yes i see dollars are brought into existence in the form of credit and debt. But i assume people don’t borrow money for discretionary items. The lions share of private debt around the world i’d assume is in the form of mortgages.
Which you are saying generally rich people have more assets which is true, but you are saying they are borrowing that money from commercial banks and servicing this debt.
So in your scenario the day of reckoning is when these assets can no longer be serviced, due to what unemployment ? Or the value of the assets falling with dropping demand ? Commercial banks unwilling to loan due to risk ?
In short what specific mechanism/s do you think will occur ? If you can give a specific example of an asset and what will happen.
Yes the FED are horrible enablers of risky behaviour and increase wealth inequality, i wonder how many zombie company balance sheets they have swallowed. I heard they are coming up with ways to do the same with hedgefunds. What an abhorrent organisation.
I’m saying a dollar shortage caused by lack loan growth is the mechanism.
If there isn’t enough new money being created to offset the money that is being destroyed each and every month as payments on debts are made. Then a forced liquidation of assets will occur. It literally becomes he who sells first is best off and it’s downhill from there
People will sell whatever they have that they can sell and they’ll be selling into an illiquid market where everyone is selling at the same time.
Again this is all coming down the pipeline but I don’t think it’s here and upon us just yet. That’s why I caution against being too bearish or overly bearish. At least in the short term future.
HHH,
Okay, a dollar shortage caused by lack loan growth is the mechanism.
Because the bank refuses to lend money. But why ?
You’d have to assume there will be significantly more pressing sociopolitical issues before or during such a scenario plays out no ?
Like for example in that scenario there will be a huge amount of bankruptcies in corporations and businesses that employ the asset holding workers. Otherwise debt can still be serviced. So one has to assume a likely hood of high unemployment.
That scenario also can assume a net negative energy scenario or a drop in population. Asset prices can drop in such a scenario.
Thinking more about the scenario you are suggesting it is actually highly complex. It isn’t as simple as saying commercial banks are unwilling to lend. Their whole business model is based around this principle. No loans no revenue no profit, shares crash goodbye. You have to give a specific mechanism as to why the banks comes to that specific suicide state decision ?
This is already happening to a certain degree in places. Banks in China choosing to lend to the government via bond purchases that yield them less than 2% instead of making loans into the economy in search of higher yields.
Those banks need a better than 2% return on the assets they are holding. Their liabilities side of their balance sheet are greater than less than 2%. What they are having to payout exceeds their income.
A lot of the loans they have made into the real economy are non performing loans. It’s north of 35% of all loans in China.
So why are these loans not performing? And if you were a bank and greater than 35% of your portfolio consisted of non performing loans would you or even could you because of balance sheet constraints, be making loans into the economy?
It will be because banks can’t make a profit by lending into the economy. GDP numbers are fake. Without growth in the energy supply you can have a massive energy supply and your economy will still shrink from whatever high level it’s been at.
Banks aren’t designed to handle a non expanding or shrinking energy supply. They have to have growth in energy. Because the economy has to payback more to the bank than the bank lent into the economy in the first place. Because of the interest expense.
Let’s take it a step further. Pretend there are no commercial banks. Pretend that the central bank is the only bank. Pretend that the liabilities side of the central banks balance sheet, the bank reserves were actually legal tender. Or legally made legal tender which currently it’s not.
It wouldn’t change anything. Non preforming loans would just pile up on the central bank’s balance sheets instead of the commercial banks balance sheets.
The thing about real estate of all types. And mortgages. I can pay off the original mortgage on my house. But when I sell it unless it’s a cash buyer a new loan is created that has to be paid off by the new owner.
That house was already paid for once by me using energy to generate an income. Now the new owner of the house has to generate income using energy to pay for that same house.
The average home price in the US is $419,000 so through the use of energy every home owner has to generate an income that can pay for that over the course of their loan.
Commercial property loans are the same. Income is produced via the use of energy to pay the mortgage. Anytime property changes hands unless it’s a cash purchase. A new mortgage is made. Property values going up requires more income to service the debt.
Energy in contraction means the ability to pay is in contraction.
HHH,
The example you gave of China’s banks not lending to the economy instead purchasing government bonds. I think that falls into the category of population decline ? Possibly.
Less demand for assets surely prices of the particular assets will drop. I think you are focusing too much on energy supply. You have to look at who is using that energy. If there isn’t a population growing there will be less demand for everything including energy.
Agreed, we are not there. But we are getting there. 2030s and beyond will be interesting to those of us alive to see it.
Trumps Stagflation (best case scenario).
Its good for the prospects of the coal industry.
I hope you weren’t planning to rely on government services like healthcare (Medicare in the US)….this is going to be very bad news for government revenues. Buzz cuts coming.
Perhaps that was part of the plan all along.
There was a plan, right?
The stag part being slower growth or recession, is likely because of tariffs being a taxing and braking mechanism on the economic activity, on trade. Also a greatly important part of this equation is the helter skelter approach to policy from Trump- businesses have great trouble navigating uncertainty and will simply put projects and adjustments on hold til they have clarity.
The inflation…higher prices for all sorts of items. And higher labor costs as the republicans push out labor.
A local example from my region- 37 employees of a roofing company were arrested at work for immigration violation/deportation this week. This was the biggest roofing company in a semi-rural county between Seattle and Vancouver BC. The next 6 months is the season to get roofing work done, from renovations to new construction. The chance of finding replacement laborers for this company or alternatives for the the customers with projects in the queue is very low. Yes, the inflation of costs for construction projects big and small is going to be very high.
I’m not sure about the effect on employment over the next year or two, and certainly longer time frame- depends how deep the economic downturn is. Trump came into office with unemployment rate of 4.0%, which is near the very bottom of the range over the past 20 years. There has been work for everyone who wants it.
I think it is very hard to predict how other countries will react. I expect that many will be looking hard for other places with which to do business. I sure would.
Some things will be deflationary as economy slows, such as oil and perhaps real estate/housing. Extent unknown.
The local example you gave, if we were to extrapolate that, you’d assume in the near term there will be inflation in the costs of a lot of things including labour.
The way i understand it in theory is, Trump plans to impose tariffs on local companies importing from outside the U.S. In essence until they find a cheaper domestic source for their respective product they will pass that cost onto their consumers. On the other hand as i understand it, he wants to reduce income tax. Looking at it from that perspective, essentially in the longer run he wants U.S companies to buy from other companies within the U.S. And if that plan were to be successful he would want to weaken the USD to make international buying from the U.S more appealing. So it seems to me from that theoretical perspective, he wants to overthrow China’s economical dominance.
A question i have is, can individuals buy products from outside the U.S say through eBay without getting imposed tariffs ?
He might achieve some of those goals if he had lots of time and maintained control of the government for more terms however I think his current path is risky and far from high likelihood of success, and raises the chance of an outcome with smaller overall pie, greater wealth gap, less capable/functional government, and no guarantee for a declining debt. And a much weaker geopolitical position.
I do believe his team wants a long term weaker dollar and to wind down medicare…both seen as mechanisms to reverse debt burden.
Competence and coherence seems to be in great shortage.
“A question i have is, can individuals buy products from outside the U.S say through eBay without getting imposed tariffs ?”
I’m not sure about other countries but for China:
All relevant postal items containing goods that are sent through the international postal network that are valued at or under $800 and that would otherwise qualify for the de minimis exemption are subject to a duty rate of either 30% of their value or $25 per item (increasing to $50 per item after June 1, 2025). This is in lieu of any other duties, including those imposed by prior Orders.
“Okay, a dollar shortage caused by lack loan growth is the mechanism.
Because the bank refuses to lend money. But why ?”
It can be a hard concept but basically it’s lack of confidence in collateral. Banks don’t feel that real economic risk is worth it because productivity (profits) are leveraged by energy. So they pull back on lending into the real economy and buy government bonds instead. The result is a global dollar shortage. The reserve currency is the Eurodollar which is ledger money created by foreign banks. That’s the real dollar market that liquifies international trade.
When HHH says other assets will get smoked chasing dollars he’s right.
2008 was a Eurodollar collapse no one wants to go through that again.
I am not sure or at the very least doubt banks look at energy at all. I can understand your point about collateral and productivity. But beyond this banks will continue to loan even though the asset might be unproductive. Say a house, as long as the population is expanding which produces the demand and banks are loaning money the asset will at the very least maintain its price if not inflate in price. Though the asset such as a house has limited productive ability (if any because it could sit there empty collecting dust) can inflate in value much more than a productive human makes annually. This is the case in Australia were a house in certain cities make much more than average income of a working individual even if it sits there empty.
Regarding 2008 not sure if that was a eurodollar issue as much as a domestic U.S issue. I think the USD fell sharply during the 2008 crash against the CHF and YEN. Wouldn’t that mean it isn’t a eurodollar issue ?
I understand HHH and your basic position, you guys are projecting a scenario were there is no coming back from because the underlying energy supporting the global economy is physically at an end. But under the microscope it seems a bit suspect to me. I think before such a event even comes to pass the sociopolitical turmoil will probably cause the fabric of social cohesion to completely break. Banks not loaning money will be the least of our problems in such a scenario. Such an event playing out in the short-medium term seems extremely unlikely to me. I think humans have access to relatively cheap energy for decades to come.
I think in the short-medium term at least, social and international cohesion breaking is more likely. As wealth inequality increases so will the political landscape in a world were people might feel like the system is no longer working for them. Protectionism, isolationism and a lack of international cooperation seems more likely to occur.
That is just one example i think, a lot of other issues pressing us. On the one hand environmental destruction, on the other declining birthrates and the need for economic growth, seems like humans are approaching a precipice in which we can no longer have our cake and eat it too. But what the hell do i know.
I completely agree Iron mike-
“I think in the short-medium term at least, social and international cohesion breaking is more likely. As wealth inequality increases so will the political landscape in a world were people might feel like the system is no longer working for them. Protectionism, isolationism and a lack of international cooperation seems more likely to occur”
And from where I sit it looks like Trump is a big accelerant to this risk scenario. No surprise there.
Iron Mike
There is an avalanche of problems facing humanity. But the focus I’ve focused on here is energy depletion. Traditionally people think collateral is purely an asset like a house so there seems to be no issue. However that simply isn’t true. If it was the only thing needed to obtain a mortgage would be an assessment. The collateral is actually the ability to repay principal with interest. That’s why they verify financial statements.
Banks aren’t smart enough to recognize that energy drives prosperity but are smart enough to know you have cash flow or you don’t.
So when HHH says energy is the problem he’s right. Banks don’t get it but that’s ok they’re energy blind.
Is money a stock or a flow? Very important to understand the difference and understand why it matters.
Stock markets have given back all gains since January 2024. So all the buybacks done over the last 14-15 months are underwater.
Right now if you’re a CEO the only fix is you go in and do more very large buybacks. Or else you risk the pullback in stocks going to a greater degree. If you wait any longer you will be underwater on the stocks you bought in 2023 and then 2020 and so on.
My view is they have to act and act now.
This will mask the underlying reality but what choice do they really have.
If companies start getting margin call on loans they used to do buybacks there will be a lot more selling coming. I think they will act soon.
I can tell you this. The largest buyers of stocks over the past 15 years aren’t participating in this sell off. And neither are the second largest buyers. Which are retirement funds. Neither are contributing to this sell off.
The CTA’s sold but once momentum flips they will be back long again.
Corporate debt in the US stands at $11 trillion. Stock buybacks that are purchased with debt aren’t even included in this figure.
So double the figure and then some. US companies are up to their eyeballs in debt. All of which will require energy usage to be paid back in the future.
So the companies have lost money on all the stock repurchases they have made since January 2024. Yet they are paying monthly principal plus interest payments on this debt. Which shrinks the money supply btw.
They have nothing to show for the debt they incurred by doing stocks buybacks since January 2024.
How do you invest in the long term future that isn’t going to be there?
You don’t. You load up the company balance sheet with as much debt as possible and you try to cash out before it all falls apart. I’m talking from the CEO’s point of view since their compensation is tied to stock values.
Stock values crashing makes that debt unproductive debt yet the debt remains and has to be repaid. Which is exactly why if this sell off continues or isn’t reversed shortly. Mass layoffs are coming.
Loadsofoil —
It does matter a little if the stock price falls, but you are right to call out American media (and Americans in general) for jabbering on about the stock price whenever they talk about a company.
Focusing on stock price has gutted American industry. For example, US carmakers are only willing to build oversized pickups because of the short term gain. The same thing happened to Harley Davidson, once a great company, now a niche manufacturer of novelty items. When faced with cheap high quality Japanese bikes, the chose a high margin niche over the hard slog of competition.
JT,
Banks are energy blind but what about the insurance companies ? Would they not take energy into account in their respective policies to insurance the banks ? I assume they do so when they are insuring an energy company, but banks yea not too sure.
Yes definitely agree, banks care mostly about cashflow. So in your end of the world scenario you are basically saying cashflow won’t exist. I assume before that banks will be gone. But yes if this scenario came to pass it will be a mad max kind of thing. But again it isn’t likely at all in my opinion.
I personally see money as a unit of energy. The more someone has of it, the more they can use energy in the shape they want it, or as a means to an end. And with energy obviously there is power too.
Thanks for the back-and-forth on this thread, it’s helpful.
I am following you and generally agree with you until your last point here about ‘money as a unit of energy’. Let me know if I’m missing something.
I think that this is the way the world ‘should’ work, and may even be the way it worked in the past, but I don’t see this now. Let’s say pre-1750, or before we really started leveraging fossil fuels. We were all working with energy and surplus available from the sun or small scale wind/hydro. Perhaps closer to the mark then? Population growth rates picked up dramatically when we started burning coal and then again after 1900. Step change.
Now to the present. First, this cannot apply in any type of uniform way across currencies today. There is too much variation in value for reasons not attributed to energy. As an example, consider the fairly frequent hyper-inflation seen in some currencies. Currency X suddenly has less purchasing power while currency Y does not. No fundamental link to energy there.
Second, there also seems to be little real link to useful work in the energy we use, whether that is due to fundamentals, taxes or other factors that blur the lines.
Hyperinflation happens when currency is printed that has no debt attached to it.
Think Argentina, Zimbabwe, Turkey, or Germany 1920’s your talking literally printing money.
When a commercial bank makes a loan. It’s a debt that has to be repaid with interest.
Because of the interest expense more money has to be repaid than there was loaned out to begin with. More money is owed than was created.
There is a built in dollar shortage that grows with every new loan that is made.
It’s hard to get hyperinflation when the money supply is constantly shrinking each and every month when principal and interest payments are made on millions of loans.
The only way to offset this monthly contraction of the money is new loan creation. The only way current debt is repaid because of the fact more is owed than was loaned out is constant expansion of loans.
If all banks were to abruptly stop making new loans. Then all of the current loans would be unplayable.
There is a direct link between energy and banks ability to make loans. Not that they ever think about it. But if available energy shrinks for any reason those that are borrowing from banks their ability to repay their loans is compromised.
It might not take a lot of energy to make a loan but it does to repay a loan.
The money supply via commercial bank loans on a chart has to go up and to the right on an exponential curve or else there will be major problems. All deflationary problems.
I encourage all here to pull up a chart of M2 money and realize that chart has to go exponentially higher from where it currently is in order for the current debt to be serviced.
If you want to transition away from ICE vehicles. That M2 money supply will really have to go vertical and keep going.
It will take a lot of new debt to make it happen.
If you think that transition can be done when the energy supply is shrinking. I say good luck with your views.
T Hill,
Thanks for your input.
You make a good point. Especially with regards to international currency exchange. Where a currencies value relative to another depends on many factors.
I tend to look it at purely from a domestic viewpoint. If i am rich in country x, i might be considered poor in country y. However as a rich country x resident, being rich implies i have more energy and power to do what i want within a set border.
Now if a countries government decided to print excessively all that is doing is diluting the energy unit availability of that currency.
My view is very crude, but somewhat applicable i think, i could be wrong but if we observe “rich” people who have access to more money or have acquired more money they tend to have more energy expenditure in terms of houses they build, energy they consume (electricity), holidays they take, luxury cars & boats they buy etc. You see all these activities to me imply generally more energy usage or consumption compared to someone from the middle or lower class who has limited to no access to such activities and things.
T Hill
” We were all working with energy and surplus available from the sun or small scale wind/hydro.”
I’ll add that the energy pie prior to fossil fuel was primarily wood and animal labor- in the form of livestock and human…including captured populations around the world. Most people in the world were captured, with the fruits of their labors owned by others with militias or title.
And much of the forests in places like Europe, Mideast, India, and China, and later in parts of N.America were stripped down to be burnt. Wherever there were dense populations of humans.
We forget some of these things.
Most people in the prefossil days knew deeply just how important prime farmland/grazing land and forest lands was…the prime source of energy and sustenance. Soil and rain. Now many seem unaware of the basic elements.
Hickory,
Concur. I should have been a bit more explicit, but when I referenced the sun as an energy source pre-1750 that is exactly what I was talking about. Photosynthesis feeding animals and wood fires.
Spend some time in what is now the woods in the NE US and you can see a great number of old stone walls from when it was significantly deforested as you note.
Another thing about banks. Particularly Eurodollar banks that make all the dollar denominated loans outside the US
They like to match up their liabilities or the loans they have made with assets that are denominated in dollars.
Sure Japanese bills and Italian bills are used as collateral for dollars loans. Those loans are also more risky and cost more to do. And if you have to take collateral in the event of a default. You get Japanese and Italian bills instead of treasury bills.
There is FX exposure to account for so more risk.
These Eurodollar banks aren’t constrained from making loans by not having banks reserves. The only thing that constrains these banks from making loans is counterparty risks.
When the energy supply shrinks even just a little bit. Counterparty risks goes up and dollars will become more expensive to obtain.
In the long term, I agree that energy and non-renewable resources availability will drive the behavior of banks and the money system in general ( think decades). In the short term, the driving forces are more capricious.
My own experience was in Indonesia during the Asia financial crisis. During the 1980s and early 1990s southeast asia was booming with huge rates of annual growth, and visions of replicating the financial miracle of Japan. International lenders were financing the expansion because the local funds available were being devoted to the equity portion of the capital costs.
I worked for a consulting engineering firm that was selected as owners engineer for a large forestry project in central Sumatra ( 1.3 billion USD), because the principle owner only had experience in plywood. The owner had harvested large areas of natural forest, and replanted it with a fast growing local species of tree (acacia mangium, 10 years to maturity) then discovered there were no established commercial uses of that species.
Our firm developed the basis for using the wood, along with a feasibility study, and financial and legal firms from New York were added to the team. A composite team was assembled to attract financing, and they went on a dog and pony show through Asia, Europe and North America to showcase the project.
The lending environment was so aggressive that we were able to negotiate financing at attractive rates for more than one billion USD, with limited recourse for the lenders and joint and several liability for the lenders (some 50 of them) to provide the total amount of the financing package.
The project got underway, and then the Asian financial crisis hit Indonesia. In one week the Rupiah went from 2,400 to the USD to 13,000 per USD. Commerce froze, banks, ATM’s , businesses closed, most of the banks to never reopen. There were riots, looting, shops burned , lynchings. All of the Indonesian subcontractors on the site were bankrupt. Had to pull the site engineers out to Singapore temporarily.
Why did it happen – mob behavior! The international lenders got cold feet and exited the market en mass.
Yes, and the Asia financial crisis was at the heart a dollar shortage. It wasn’t because local Asia banks and authorities went and printed a whole bunch of money.
It was because dollars became very expensive to obtain because counterparty risk went through the roof. Virtually overnight.
HHH
The counterparty risk was there all along – it was the banks perception of counterparty risk that changed overnight.
Some of the lenders tried desperately to withdraw from our financing; none succeded thanks to the work of the New York lawyers and financiers. Our project continued on to completion and started repaying the loans on schedule.
Imagine a scenario where oil and gas imports are drying up for everyone that depends on them.
This is going to play out over the next 10-15 years. Perhaps sooner. It depends on the flow of oil and natural gas.
The counterparty risk will be realized and dollar funding will dry up but existing dollar denominated debt will remain. And the banks will go bust because they have loaned out a bunch of money that can’t be repaid.
And unfortunately because central banks aren’t really what we are told they are. And their bank reserves aren’t used in the Eurodollar market. The swap lines between central banks are nothing but smoke and mirrors. There is no backstop that can re-liquify these banks. Governments will have no choice but to sell dollar denominated reserve assets in order to provide dollars.
China and Japan will end up selling every last treasury bond they own in order to provide the dollars that the Eurodollar banks just aren’t willing to provide.
A lot of dollars flow into Swiss bank accounts. These accounts will be raided to provide the dollar’s that the Eurodollar banks just aren’t willing to provide. Rich people are going to have to liquidate their accounts to obtain the dollars they need.
The so called safe haven assets will all be sold.
When the Italian and Japanese government bills start getting rejected as collateral for Eurodollar funding. It becomes way bigger than the 2008 crisis.
HHH
I see the possibility of things unfolding a little bit differently if BAU more or less continues. As the reality of an inexorable shrinking in the availability of fossil energy sources starts to register with lenders and investors, which of them will still be willing to invest in major projects with a payback of twenty years? Infrastructure projects built to last for 70 years?
I could see the emphasis shifting to repair of existing old plants, stringing out their life for as long as possible. The mining industry is already very good at that, as the ore reserves deplete they keep the processing equipment together with big welds and patches and duct tape, when the ore is gone the surface equipment is scrap.
Depreciating capital assets is a source of funds that can be used for day to day existence if you are not reinvesting.
Interesting times a-coming
It’s a small thing but a big thing at the same time. One can’t not wish them well.
ZOO’S TORTOISES BECOME FIRST-TIME PARENTS… AGED ABOUT 100
“The zoo said this week it was “overjoyed” at the arrival of four hatchlings from Abrazzo and Mommy, a pair Western Santa Cruz Galapagos tortoises. The births were a “first” in the zoo’s 150-plus-year history, it said, and Mommy – who arrived in 1932 – was the oldest known first-time mother of her species. Western Santa Cruz Galapagos tortoises are critically endangered in the wild, and there are fewer than 50 kept in US zoos.”
The hatchlings are part of the Association of Zoos and Aquariums’ breeding programme, aimed at the survival of species and genetic diversity.
Bond yields are up rather sharply today. Take note of this. It could very well be selling of US denominated assets in order to provide dollars that banks aren’t willing to lend.
I know everyone believes that the selling of US treasuries is de-dollarization. But the reality is the selling of US treasuries is an act of desperation to keep from having to default on debts. Governments selling to provide entities within their local economy dollars.
They don’t really have a choice. Unless they are ok watching their entire economy burn to the ground. Via local currency depreciation in a rapid fashion.
But this could also be signaling that the bottom is in for stocks and it’s ok to return to our risk taking behavior and buy stocks.
Just remember during the pandemic bond yields started to spike because in fact they were being sold to obtain dollars. Luckily it was short lived. And banks returned to risk taking and making loans.
When energy starts to shrink there will be no ok moment were it is safe to return to normal banking activity.
Bond yields tend to follow each other because it’s global. And I just looked again a minute ago and yields in the UK, Australia and Canada have also spiked today.
Bond yields spiking in the US can cause major problems outside the US. Because at the margins US treasuries are the discount rate and everything else is priced off that.
It’s something to watch if it keeps going. It would definitely signal dollar shortage.
Japanese stock are going to close with a candlestick that has a long wick down. Super long wick down as prices dropped 9% early on but will close with and under 4% loss. This is usually a reversal. US stock after being down large then going positive, then being down large again are going to close flat to slightly up.
I’m heavily leaning towards a bottom here that gets bought. I think we have a little more ways to go before available energy shrinking really starts to kick in and markets and prices go down and stay down and never recover.
But at the time that spike in yields is alarming and something to keep close eye on. Definitely one of the largest spikes I’ve seen over the past 5 years. And the fact it’s happening in a massive stock market downturn doesn’t help with the confidence.
And whatever bounce we get. And I say bounce because that is what appears to be happening in some places. Might be short lived.
Some things, going on in the USA today, remind me of the period preceeding the collapse of the USSR.
– The elderly in power: Are there no younger people? Sure there are, but they await the inevitable crash.
– The “Thruth”, Your Presidents social medium full of lies, resembles the Pravda (Russian for Truth), the state run newspaper in Russia those days.
– The bluff: “Look how great we are!”
– The messages to the own people: “Everything will be fine, just wait for it.” Declaration of a “Transition Period.”
– Reform of government administration, feels like “Perestroika”
– Issues with natural resources
– …
– Short: an empire at the end of its tether.
Don’t forget: “V Pravde nyet izvestiy, v Izvestiyakh nyet pravdy” (There is no truth in Pravda and no news in Izvestia.)
Our version might be: There is no reality in the media and only lies from the government.
China seems to be intervening in the currency market. They do this by having their huge state run banks sell treasuries. They say it’s selling dollars.
What they are actually doing when they do this is providing dollar liquidity. They are selling treasuries and using the dollars to plug holes. Which means they can source less from the Eurodollar market. Takes some of the pressure off their currency.
It’s the equivalent of using your rainy day fund though.
This is about 300 miles of Brownsville TX, in a semi-humid zone agricultural region-
“here we are: 48.0C/118.4F at El Pujal and Santa Rosa in Mexico on 3 April, highest temperature in the Northern Hemisphere so far in 2025 and close to the hottest in the world ever recorded for this time of the year.”
I never understood why he wasn’t hung from a tree.
I drove once from Charlottesville to Williamsburg and from there to DC. I never before or since saw so many statues of one individual. For a century after the war he was the personification of a ignoble fight to save an ignoble way of life.
I used to think life as we know it was more likely to come crashing down as the result of ecological and natural resource issues than from political troubles.
There’s no doubt in my mind that the climate is going to go nuts……… but I don’t know enough to have a strong opinion as to how long it will be before people are starving starve by the tens of millions. This scenario could come to pass within the next decade………… or it might never happen. The population might peak and decline sooner than expected, maybe a lot sooner. Contagious diseases and hot wars ya know……………
With luck we might actually turn the corner on peak oil by going electric and giving up our energy wasting live styles. We might give up beef and eat down the food pyramid …….. if we are forced by circumstances to do so.
Peak material resource issues do not necessarily mean the end of industrial civilization. A runaway greenhouse effect does not necessarily mean we revert back to the Stone Age.
Some of us have survived and thrived everything Mother Nature has thrown at us for tens of thousands of years.
But it’s been less than a century since we’ve gotten so to the point we might actually wipe ourselves right out of existence in fairly short order.
It’s reasonable to say that we’ve avoided WWIII for the last eighty years or so because SO FAR level heads on all sides have prevailed knowing that nobody can win number three.
We call it MAD, mutual assured destruction. Ironic, isn’t it? It’s our best and probably only real safeguard, and it’s kept us alive longer than most of us have lived.
But I’m not at all sure this is the case any more.
When the cat’s away the mice can play. This general concept holds true at many levels from the neighborhood to nation states. A couple of motorcycle gangs control the drug trade in my neck of the woods, as is the case in many parts of the country. . They’re tough nasty people but they’re also business people. They like for things to run quietly, without attracting too much attention.
If some local redneck gets too big for his britches, stealing customers, attractinge attention, they pay him a visit, and explain the rules. He either plays by their rules, or winds up in a wheel chair or prison or dead.
The gangs mostly steer clear of each other but they’re very quick to react to anybody pushing into their turf. Sometimes they go to war with each other. At other times the possibility of such a war distracts their attention so that upstarts think the time is ripe to establish a gang of their own and have a territory of their own.
Now times are such that the larger more powerful countries of the world are experiencing troubles enough that they’re just not necessarily up to the job of keeping the peace any more.Various upstart wannabe dictators are bolder than ever, and countries such as the USA may have too many problems to play cop any more.
In our own case we’re fast losing the trust and faith of countries that have been our steadfast friends for a very long time. A new world order may be emerging. Some countries are going their own way. Some others may decide they’re better off being besties with Russia or China rather than the USA..
We may be only one idiot with a grenade or a pistol from WWIII.
Maybe the idiot that will start number three is contemplating doing something stupid enough to start it this very minute.
We’re maybe headed into a new arms race with some countries that up until the last decade or two had little or nothing in the way of arms industries manufacturing armaments of just about every sort short of nukes on the grand scale. There may soon be some new members in the nuclear club as well.
I’m too old to worry much about it. Too old and too broke to really do anything I haven’t already done anyway.But anybody young enough to have any real future prospects should be doing some really serious thinking about his or her personal future.
Bottom line, life is very much about playing the odds. We pay for health insurance, we exercise, we watch what we eat, we save for a rainy day, we try to avoid killer bad habits such as booze and tobacco.
If you’re young enough to have a future, maybe you ought to be thinking less about such things and more about moving to a place less likely to be reduced to ashes and rubble, a place where you can get drinking water from a well or spring rather than a public utility, a place where there’s some hope some local farmers will survive, where there are trees for firewood……….. and some houses have chimneys.
Of course you can run a stove pipe out thru a window…….. assuming you can put your hands on a stove and something to burn in it. And something to cook on it.
Good to hear you OFM. I don’t really know what top 5 risks to tell a young person to prepare for are…its a reverse cornucopia. In addition to developing a whole slew of skills, I think I’d aim towards electrical expertise.
Like in the old movie The Graduate ‘One word- Plastics’, except now I’d say “Electrical”
I’d be curious to hear how your regions people are reacting to their hero in the white house as the fun unfolds over this term.
ENERGY DEMANDS FROM AI DATACENTRES TO QUADRUPLE BY 2030
“Processing data, mainly for AI, will consume more electricity in the US alone by 2030 than manufacturing steel, cement, chemicals and all other energy-intensive goods combined, according to a report from the International Energy Agency (IEA). Global electricity demand from datacentres will more than double by 2030, according to the report. AI will be the main driver of that increase, with demand from dedicated AI datacentres alone forecast to more than quadruple.”
LESS THAN 10% OF GLOBAL PLASTICS MANUFACTURED FROM RECYCLED MATERIALS
“Only 9.5% of plastic materials produced globally in 2022 were manufactured from recycled materials. The findings, reported in Communications Earth & Environment, are part of a comprehensive analysis of the global plastics sector, which also reveals a large increase in the amount of plastic being disposed of by incineration and substantial regional differences in plastic consumption.”
Globally now that we know what the tariffs are going to be. Central banks will be cutting interest rates even more aggressively than they already have been to soften the blow.
Not that it really matters if they cut rates but that is what they will do.
I personally know of in my neck of the woods. 5 companies from Canada and 3 from Mexico are looking for space to move their business into in my local area. That part is happening. Without any thoughts of will there be plenty of cheap energy for years, decades to come.
And banks will finance these moves without any thought of energy. From a Eurodollar perspective that means a ramp up of dollar denominated loans. A weaker dollar. For a little while at least.
Just know that all the added debt that will be required to move production back into the USA will require even more debt to be repaid. We going to need exponential loan growth.
Better hope that the shale oil and gas production continues to grow otherwise we will have a problem. Might be able to address that problem for a little while by banning oil and gas exports.
We will hear all kinds of crap spewing out of all kinds of places. Like a dollar confidence crisis from a particular German bank who just so happens to loan out massive amounts of dollars.
They need the dollar to go lower so all those dollars they lent out can be serviced. But what they are going get is a rising Euro even while the ECB is cutting interest rates. While their internal economy in Euro terms slows and contracts.
The U.S. has a great deal of coal, it could double coal consumption and the coal would last over a hundred years.
https://www.eia.gov/coal/reserves/
Add increasing wind and solar and I don’t see an electricity shortage.
Good thing there are no externalities associated with coal then.
Or problems with the US manufacturing renewables.
The world does not really have an energy shortage.
Think of the oil in Venezuela.
https://www.strausscenter.org/energy-and-security-project/venezuela/
Not too mention Iran, Iraq, Russia. Any shortages are caused by wars and incompetent dictatorships.
The most immediate threat we face is environmental.
https://icfs.org.uk/the-looming-water-crisis-a-threat-to-indias-future/
https://www.theworldcounts.com/challenges/planet-earth/forests-and-deserts/global-land-degradation
Nobody is affected by peak oil or peak coal. But millions are effected by peak water and peak soil.
“The world does not really have an energy shortage.”
Not yet. Peak fossil fuel combustion will occur in the next decade and much of humanity could survive in a world that used half as much energy (or less)…if it was used for important purposes targeted at basic survival and in a somewhat equitable distribution (Good luck with that). ‘Incompetence’ and cruelty in human behavior is an integral and permanent part of the equation.
Affordability of, and physical constraint on access to, energy will become a big problem for much more than the couple billion who struggle mightily with it now regardless of the global supply numbers.
Agree with your concerns on soil and water, wholeheartedly.
Peak fossil fuel combustion will occur in the next decade…energy will become a big problem for much more than the couple billion who struggle mightily with it now
Well, after reading many of your comments, I’m still puzzled. Many of your comments seem very sensible to me, yet comments like the above don’t make sense to me. What do you think the impact of alternatives to FF?
‘What do you think the impact of alternatives to FF?’
Nice for those who deploy plenty of ’em, and learn to live with much less energy.
Nonfossils will delay the combustion peak maybe a few years, and maybe even lower the global peak emissions a little. On a graph it will look like stretching out the curve to a some degree.
Humans burn stuff, and there is still a hell of lot to burn.
Fossils still account for roughly 80% of primary energy consumption.
Lets talk when when it gets down to 70% sometime in the next decade (maybe).
I know I say things that you find unpleasant to swallow. And
I know you are itching to instruct me/us about how it could be different.
I’ve heard the story. We’ll see what comes….well some will.
The reality of heading up toward 3 degree C heating is what catches my attention.
Actually, I think we agree more than you think.
I think climate change is far more dangerous than PO. And, that misinformation about FF is one of the political strategies employed by the FF industry to prevent change, to prevent the necessary transition away from FF.
The reality: FF is not necessary. FF is expensive, unreliable and polluting. Most FF applications can be replaced with lower cost alternatives right now. Some alternatives are not cost competitive now, but will be later. And a few may never be cheaper than FF until you price in the cost of pollution. But the *overall* cost of alternatives will be lower than the cost of FF even without pricing in pollution and the other external costs of FF.
The idea that FF is necessary in the medium and longterm is just propaganda. I know that’s unpleasant to swallow for people in the FF industry but….
Nick, this is one of the most ridiculous statements you have ever made…
“The reality: FF is not necessary. FF is expensive, unreliable and polluting. Most FF applications can be replaced with lower cost alternatives right now.”
You think FF are not necessary, really? With 8.2 billion people on the planet, if we stopped using FF tomorrow the world economy would crash into anarchy and chaos tomorrow. No more solar panels or wind turbines or batteries or nuclear power plants would ever be made. Civilization would be toast overnight.
FF are totally necessary for modern civilization to exist, despite the climate damage, species loss, endocrine disruptors, forever chemicals released into the environment.
We humans have a choice, stop all the damage right now and collapse civilization overnight, or continue with civilization and destroy the environment, climate and most other species, while collapsing civilization a bit later.
By lying to ourselves that magic and fairytales are possible we have chosen the latter, as we live for the now on average….
Hideaway, yes of course Nicks proclamation is just silly.
You said- ‘We humans have a choice, stop all the damage right now and collapse civilization overnight, or continue with civilization…’
I really don’t think that is realistic either. Its not a choice that humans can make. Its not in our nature to go into a state of rapid retreat. Or even to retreat at all.
Economic and population contraction will happen to us, but not willingly. We will fight to the last lump of coal and the last tree to keep the bulldozer moving.
People will put energy (and food) supply over environmental health every day of the year. All the way until they are left standing on earth burnt to a crisp.
https://www.esquire.com/news-politics/politics/a28102591/india-drought-chennai-climate-change-five-years-transform/
If you look at human history energy is a very cynical business.
The goats are not needed now, because we now got cows and oxen that can provide more milk, a bit more meat and also the oxen can pull the plow. They can feed of straws from the fields, and if not so, just for a fraction of the food needed for humans. Let us cull the goats. And if you look at more recent history pigs are great for meat production, but only when the energy surplus elsewhere makes this a good proposition due to demand.
What can be argued for is for a somewhat egalitarian society where you organise for 70%+ of the experienced value, with only 20-30% of the “useable” energy expenditure where it is possible. That is the conservation mindset. If not, we are going to experience a wealth gap where something eventually is going to break. Arguing in absolutes does not really help; like we are not going to run out of energy, the universe is infinite etc. Energy is in the end measured in useable energy and the business overall could be characterised as pretty ruthless.
“Nobody is affected by peak oil”
That is a bold statement
Andre
Currently there is plenty of oil, also oil and gas are easily transported. One tanker can supply a country like Portugal for a week. Road tankers easily transport petrol to all the petrol stations.
Portugal has been having severe droughts over the last few years, not just in tourism areas. Providing water so the crops don’t die has huge costs.
https://environment.ec.europa.eu/news/video-portuguese-farmers-fight-drought-major-tourist-region-2024-09-25_en
Supplying additional water for crops which previously had enough rainfall for free will have major impacts on costs of food. Supplying desalinated water for people to drink is one thing, irrigation of crops is something else.
Reading about droughts and also aquifer depletion around the world, I am sure we are close to peak freshwater and food. If humans did not spend $2.4 Trillion on killing each other then these problems could be sorted but it would take most of that money to do so.
https://www.cnn.com/2025/04/03/economy/reciprocal-tariff-math/index.html?iid=cnn_buildContentRecirc_end_recirc
President Donald Trump’s massive tariffs announced on dozens of nations Wednesday were pitched as “reciprocal,” matching what other countries charge the United States dollar for dollar, even taking into account non-tariff barriers like value-added taxes and other such measures.
But the actual calculation the Trump administration used is not reciprocal at all.
Matching countries’ tariffs dollar for dollar is an incredibly difficult task, involving poring over each country’s tariff schedule and matching a complex array of products, each of which has a different charge for any variants.
Instead, the Trump administration used quite a simple calculation: the country’s trade deficit divided by its exports to the United States times 1/2. That’s it.
The calculation was first suggested by journalist James Surowiecki in a post on X and backed up by Wall Street analysts. The Trump administration later confirmed that was the calculation it used.
For example, America’s trade deficit with China in 2024 was $295.4 billion, and the United States imported $439.9 billion worth of Chinese goods. That means China’s trade surplus with the United States was 67% of the value of its exports — a value the Trump administration labeled as “tariff charged to USA.”
These Trump people really are not intelligent.
“of our present day, sub-literate, cut-rate carnie clowns.”
China has had tariffs on goods for decades
China actually forced car companies to set up factories in China with threats of import bans.
Time is ticking for China. I have no doubt they’ll do everything within their power to keep internal coal production and consumption at or near today’s levels.
Which gives them about 20-25 years of coal left. Coal mining happens 24/7 365 days a year. I don’t think anybody or any combination of countries could ramp up coal production then export it to China to keep that going.
A lot of talk of China doing land grabs via war. Well they have a limited amount of time to do that as well. If that was the actual plan and not just talk.
China actually banned foreign investment in the USA in response to the tariffs. So they won’t be moving any factories to the USA.
Net result will be less dollars flowing into China and less dollars flowing out of China because they won’t be importing as much. Which means every country they import raw materials from will be receiving less dollars.
This is a problem for Eurodollar banks that have loaned out dollars.
LOADSOFOIL —
China also limits foreign ownership of local companies, which would be a sensible place to reciprocate.
Yes it would China owns the last U.K. steel plant and they are shutting it down.
We have given away our wealth to scum
T hill to DC: Also perhaps by your own understanding of how tariffs really work?
T, It is no mystery how Tariffs really work. A certain percentage of the estimated price of the imported product is added to the total price. That percentage goes to the federal government of the importer. The importer then adds that percentage to the retail price of the product. The public consuming the product pays that extra percentage. It is basically a tax. The retail price of every imported product is increased by the amount of the tariff. A fifth grader could understand that.
Dennis wrote: These Trump people really are not intelligent.
That much is obvious. Tell us something we didn’t already know.
So, there you have it lads.
James Hansen: “Global Sea-Ice at Both Poles is Rapidly Vanishing due to Global Warming Acceleration.”
https://www.youtube.com/watch?v=Lk0K1nMhroU
“Deutsche Bank has raised concerns over a possible erosion of trust in the US currency amid escalating trade tensions…”
FAO [global] Food Price Index stable in March 2025…
Food price index is a mathematical calculation the index was below 100 for several years food prices did not go down by any matrix.
https://en.wikipedia.org/wiki/FAO_Food_Price_Index
This is the reality and it is grim.
https://foodfoundation.org.uk/news/food-prices-tracker-january-2025
Thanks L. The 2nd link says £56/wk on food per UK male? Wow. I spend £19/wk. Or £34/wk if you include 2 meals out. The alcohol bill is high though 🙂
Trade wars are not going to be good for food prices-
“Globally, 25 per cent of food production is traded internationally. Today, nearly 5,000 trillion kilocalories are traded daily — more than double the amount in 2000”
Good article
https://www.science.org/content/article/burgeoning-global-food-trade-lifeline-billions-is-it-breaking-planet
Hickory, geothermal reaches the pages of the Atlantic…
The Hottest Thing in Clean Energy
Gift article link:
https://www.theatlantic.com/science/archive/2025/04/geothermal-energy-boom/682291/?gift=DKNNSspiF0WafPt2o1jA-hVS6z3KdyMCqs_7J4EM2KQ&utm_source=copy-link&utm_medium=social&utm_campaign=share
Groan, is there anything humans aren’t fucking up?
OXYGEN IS RUNNING LOW IN INLAND WATERS—AND HUMAN ACTIVITIES ARE TO BLAME
“Rivers, streams, lakes, and reservoirs aren’t just scenic parts of our landscape—they’re also vital engines for life on Earth. These inland waters “breathe” oxygen, just like we do. But a new study led by Utrecht University researchers shows that we’ve been suffocating them during the last century, an era also known as the Anthropocene. The research, published today in Science Advances, reveals that the way oxygen is produced and used in inland waters has dramatically changed since 1900. The culprit? Human activities.”
https://phys.org/news/2025-04-oxygen-inland-human-blame.html
Sad as it is, I’ve learned through Catton that this is all part of a perfectly natural process of ecological succession. All species alter their environments to the point that they will not support their populations, thus paving the way for the next species —
–cockroaches.
https://mishtalk.com/economics/china-strikes-back-with-34-percent-tariffs-stocks-plunge-second-day/
China responds to Trump tariffs with tariffs on rare earths.
1968: Martin Luther King Jr. shot and killed
1975
Microsoft founded
Did Trump just come to the realization that it is ultimately the US consumer that pays for the tariffs we place on other countries? I’ve come across stuff that makes me think that Trump used to believe that if the US places tariffs on another country, it is that country (or the exporter from that country) that pays the tariff to the US treasury.
I’ve done google searches and asked my computer this question, and the answer seems to be that Trump used to believe that the exporter pays the tariff. I have to believe that after all of the uproar since his tariff announcements, he now understands how tariffs actually work. I’d appreciate any insights on this.
I think ultimately the tariffs will be softened by currency depreciation. Not the dollar. But other currencies depreciating.
For the most part as hard as markets have been crashing. We haven’t seen a rush into the safety of bonds. And that is everywhere not just in the US.
Stocks have lost all their gains since January 2024.
Which if you’re a CEO what do you do here? You got two choices. You either do a whole lot more stock buybacks or you’ll start looking to cut costs by cutting the head count.
I’m leaning towards them doing a whole lot of buybacks. Maybe I’m wrong.
Also the banks are on the hook. They loaned the money to do the stock buybacks in the first place. I’ve said before that it will eventually come back and bite the banks. But I think everything will be done here to right the ship because the banks are on the hook.
Every crash is a buying opportunity. Unless everything is going to zero and the doors are shutting.
Long term since debt requires expanding energy and debt to be repaid. Yes everything will head towards zero and the doors will be shuttered. I don’t think we are quite there yet though.
From Reuters April 4 2025, Costas and O’Brien reporting on Bessent.
‘We have a strong-dollar policy and we are putting in all of the necessary ingredients to make sure the dollar is strong over the long run,’ he said.
The dollar has shed nearly 6 percent of its value against major trading partners’ currencies since Trump’s inauguration on January 20.
Perhaps it’s just too soon, but not heading in this direction.
The dollar’s value is determined in the Eurodollar market not by the treasury secretary or the Fed.
Are dollars being created in the Eurodollar or not. Are dollars becoming more expensive to obtain. Does it take more collateral to obtain dollars. Are foreign governments having to sell dollar denominated reserve assets like treasury bonds in order to obtain dollars that banks just don’t want to provide. These are the things that determine the value of the dollar.
Energy and the dollar are directly related. As long as energy is available. Loans will be made to put that energy to use. Debt expanding and loans being made is dollar negative. And the opposite is positive for the dollar.
Sure when Japanese investors sell a bunch of US stocks the dollar will go down. But that isn’t the end all of what determines the value of the dollar. That is just carry trade unwinding.
The dollar dwarfs the yen in trade and finance. And when the dollar carry trade unwinds everything including the so called safe haven assets like the yen and Swiss franc, gold and even treasury bonds will get smoked. Everything gets sold in order to service that dollar denominated debt.
You’ll know it’s serious when the safe haven assets get smoked. That’s why I’m not that concerned with the recent market crash.
Is the potential there for this to turn into something bigger than it currently is? Yes. But that isn’t my base case scenario.
I think this crash gets bought. And until I see reason to change that way of thinking. My base case will remain that this is just another buying opportunity.
HHH,
The strength of a currency, just like with most other things in life is multifaceted.
Government fiscal and central banks monetary policies play a role. Eurodollar is another factor among many for the USD. I think Trump has mentioned a few times he wants a weaker dollar, obviously the reason is to balance the trade deficit to increase US exports. I don’t think he will achieve this in the near term but it is possible for the government to implement policies to make the USD weaker.
When do you expect safe haven assets to get smoked ? I can see a possible gold sell off due to margin calls if the market continues to drop, it actually might’ve happened to the silver market on the back of Fridays session. But Yen or Swiss Franc, not so sure, though it is possible if investors begin to see the USD as a safe haven.
It’s not that the dollar is a safe haven. It’s the fact that the debt unwinds. And most of the debt is denominated in dollars. So everything under the sun gets crushed in order to service the debts.
If credit blows up here then this will become a more serious problem. I don’t have a timeline. I’m just watching with an understanding of what has to happen to turn this into a bigger problem. And I also understand the ramifications of what happens if indeed credit does go up in flames. Not my base case scenario.
Maybe in a long term view it’s my base case scenario. I just don’t currently believe that is where we are now.
Need to see energy shrink into some sort protracted contraction to see credit freeze up and freeze up for good in my opinion
HHH,
Can you elaborate on what you mean by debt unwinding ? You mean the private debt held in USD ? What assets ?
Well we don’t need an end of the world scenario with energy scarcity to have periods of economic turmoil, look at 2008. There was plenty of energy available, but credit was expanding exponentially into speculative assets. The liquidity crisis which unfolded nearly froze the whole global economic system.
Also the Fed and the rest of the central banks will be stepping in shortly if things continue going south.
That doesn’t mean money printing. That means a collateral swap. Moving the underwater assets onto the central bank balance sheet so they don’t have to be marked to market.
So the banks and possibly some hedge fund this time around will have their balance sheets cleaned up. The reason banks, hedge funds are willing to take on massive amounts of leveraged up risk is because they know they be bailed out. Because the collateral chains will be like dominoes falling across the globe if they don’t.
But even with a cleaned up balance sheet you need an expanding energy supply to really ramp up loan creation. We will never be able to leave QE for very long without currency providers or loan creators going bust. And this temporary fix has a shelf life. There will come a time when QE may clean the balance sheet but lack of energy makes it where these balance sheet don’t expand regardless of being clean.
Capitalism ended in 2008. We have cronyism now.
To elaborate what I mean by debt unwinding.
I mean dollars are borrowed into existence. You are borrowing dollars and buying everything with those dollars.
Because of the interest expense on debt way more dollars are needed to service the debt than are dollars available to service the debt.
So you need constant expansion of the money supply via loans made by commercial banks or else that debt is unplayable.
The debt unwinding is the selling of the things you bought with dollars in order to get dollars to service the debt that you incurred by borrowing dollars.
In two words what we are talking about is a dollar shortage.
The end game is the value of the dollar goes through the roof and the value of everything else crashes.
The main difference between wealthy people and average people is the ability to borrow money.
What I can tell you is that most wealthy people have a huge amount of debt. And those that do have a huge amount of debt will no longer be wealthy as this plays out.
An for the record I don’t agree with the bailouts. I think Blackrock and the Citadel and the rest of them along with all the banks shouldn’t be bailed out. But I also understand what happens if they aren’t. But it doesn’t matter what I think. All that matters is what will actually happen.
What is likely to happen shortly. As soon as next week is the corporate buybacks resume after the quarter ending 2 week blackout period is over. And it’s likely that the CTA’s jump in on the momentum change. It’s likely that the passive inflows from retirement funds continue.
HHH,
Yes i see dollars are brought into existence in the form of credit and debt. But i assume people don’t borrow money for discretionary items. The lions share of private debt around the world i’d assume is in the form of mortgages.
Which you are saying generally rich people have more assets which is true, but you are saying they are borrowing that money from commercial banks and servicing this debt.
So in your scenario the day of reckoning is when these assets can no longer be serviced, due to what unemployment ? Or the value of the assets falling with dropping demand ? Commercial banks unwilling to loan due to risk ?
In short what specific mechanism/s do you think will occur ? If you can give a specific example of an asset and what will happen.
Yes the FED are horrible enablers of risky behaviour and increase wealth inequality, i wonder how many zombie company balance sheets they have swallowed. I heard they are coming up with ways to do the same with hedgefunds. What an abhorrent organisation.
I’m saying a dollar shortage caused by lack loan growth is the mechanism.
If there isn’t enough new money being created to offset the money that is being destroyed each and every month as payments on debts are made. Then a forced liquidation of assets will occur. It literally becomes he who sells first is best off and it’s downhill from there
People will sell whatever they have that they can sell and they’ll be selling into an illiquid market where everyone is selling at the same time.
Again this is all coming down the pipeline but I don’t think it’s here and upon us just yet. That’s why I caution against being too bearish or overly bearish. At least in the short term future.
HHH,
Okay, a dollar shortage caused by lack loan growth is the mechanism.
Because the bank refuses to lend money. But why ?
You’d have to assume there will be significantly more pressing sociopolitical issues before or during such a scenario plays out no ?
Like for example in that scenario there will be a huge amount of bankruptcies in corporations and businesses that employ the asset holding workers. Otherwise debt can still be serviced. So one has to assume a likely hood of high unemployment.
That scenario also can assume a net negative energy scenario or a drop in population. Asset prices can drop in such a scenario.
Thinking more about the scenario you are suggesting it is actually highly complex. It isn’t as simple as saying commercial banks are unwilling to lend. Their whole business model is based around this principle. No loans no revenue no profit, shares crash goodbye. You have to give a specific mechanism as to why the banks comes to that specific suicide state decision ?
This is already happening to a certain degree in places. Banks in China choosing to lend to the government via bond purchases that yield them less than 2% instead of making loans into the economy in search of higher yields.
Those banks need a better than 2% return on the assets they are holding. Their liabilities side of their balance sheet are greater than less than 2%. What they are having to payout exceeds their income.
A lot of the loans they have made into the real economy are non performing loans. It’s north of 35% of all loans in China.
So why are these loans not performing? And if you were a bank and greater than 35% of your portfolio consisted of non performing loans would you or even could you because of balance sheet constraints, be making loans into the economy?
It will be because banks can’t make a profit by lending into the economy. GDP numbers are fake. Without growth in the energy supply you can have a massive energy supply and your economy will still shrink from whatever high level it’s been at.
Banks aren’t designed to handle a non expanding or shrinking energy supply. They have to have growth in energy. Because the economy has to payback more to the bank than the bank lent into the economy in the first place. Because of the interest expense.
Let’s take it a step further. Pretend there are no commercial banks. Pretend that the central bank is the only bank. Pretend that the liabilities side of the central banks balance sheet, the bank reserves were actually legal tender. Or legally made legal tender which currently it’s not.
It wouldn’t change anything. Non preforming loans would just pile up on the central bank’s balance sheets instead of the commercial banks balance sheets.
The thing about real estate of all types. And mortgages. I can pay off the original mortgage on my house. But when I sell it unless it’s a cash buyer a new loan is created that has to be paid off by the new owner.
That house was already paid for once by me using energy to generate an income. Now the new owner of the house has to generate income using energy to pay for that same house.
The average home price in the US is $419,000 so through the use of energy every home owner has to generate an income that can pay for that over the course of their loan.
Commercial property loans are the same. Income is produced via the use of energy to pay the mortgage. Anytime property changes hands unless it’s a cash purchase. A new mortgage is made. Property values going up requires more income to service the debt.
Energy in contraction means the ability to pay is in contraction.
HHH,
The example you gave of China’s banks not lending to the economy instead purchasing government bonds. I think that falls into the category of population decline ? Possibly.
Less demand for assets surely prices of the particular assets will drop. I think you are focusing too much on energy supply. You have to look at who is using that energy. If there isn’t a population growing there will be less demand for everything including energy.
Agreed, we are not there. But we are getting there. 2030s and beyond will be interesting to those of us alive to see it.
Trump does not understand anything about economics.
He heard a rumor that the Federal Reserve can print money, so he wants to run the Fed Reserve
“Because he has better instincts”.
Trump likes tariffs because he is a narcissistic bully, and now everyone in the world is focused on him and his power.
He does not care if it ruins the entire global economy.
https://www.youtube.com/watch?v=xf_p3FhZv1U
10 minutes
Warren Buffet (whose Berkshire Hathaway is sitting on 300 billion in cash).
Buffet says Trumps tariffs are an “Act of war on the global economy”
When is that old fool going to kick the bucket like his pal Munger.
fool? Buffet is anything but a fool….Of the elite billionaires he is probably the most likeable….but he will talk his books …….
The crazy thing with Buffet is he is in his nineties…and still counting every penny……it’s just in his DNA.
Trumps Stagflation (best case scenario).
Its good for the prospects of the coal industry.
I hope you weren’t planning to rely on government services like healthcare (Medicare in the US)….this is going to be very bad news for government revenues. Buzz cuts coming.
Perhaps that was part of the plan all along.
There was a plan, right?
Hickory,
You think stagflation will occur in the U.S ? Why ?
I can see a scenario why inflation will go up due to tariffs ? But why would the unemployment rate ?
It is also likely there will be a recession due to dampening demand for more expensive goods. Very hard to predict how this all plays out.
The stag part being slower growth or recession, is likely because of tariffs being a taxing and braking mechanism on the economic activity, on trade. Also a greatly important part of this equation is the helter skelter approach to policy from Trump- businesses have great trouble navigating uncertainty and will simply put projects and adjustments on hold til they have clarity.
The inflation…higher prices for all sorts of items. And higher labor costs as the republicans push out labor.
A local example from my region- 37 employees of a roofing company were arrested at work for immigration violation/deportation this week. This was the biggest roofing company in a semi-rural county between Seattle and Vancouver BC. The next 6 months is the season to get roofing work done, from renovations to new construction. The chance of finding replacement laborers for this company or alternatives for the the customers with projects in the queue is very low. Yes, the inflation of costs for construction projects big and small is going to be very high.
I’m not sure about the effect on employment over the next year or two, and certainly longer time frame- depends how deep the economic downturn is. Trump came into office with unemployment rate of 4.0%, which is near the very bottom of the range over the past 20 years. There has been work for everyone who wants it.
I think it is very hard to predict how other countries will react. I expect that many will be looking hard for other places with which to do business. I sure would.
Some things will be deflationary as economy slows, such as oil and perhaps real estate/housing. Extent unknown.
Hickory,
Yes it is quite uncertain.
The local example you gave, if we were to extrapolate that, you’d assume in the near term there will be inflation in the costs of a lot of things including labour.
The way i understand it in theory is, Trump plans to impose tariffs on local companies importing from outside the U.S. In essence until they find a cheaper domestic source for their respective product they will pass that cost onto their consumers. On the other hand as i understand it, he wants to reduce income tax. Looking at it from that perspective, essentially in the longer run he wants U.S companies to buy from other companies within the U.S. And if that plan were to be successful he would want to weaken the USD to make international buying from the U.S more appealing. So it seems to me from that theoretical perspective, he wants to overthrow China’s economical dominance.
A question i have is, can individuals buy products from outside the U.S say through eBay without getting imposed tariffs ?
He might achieve some of those goals if he had lots of time and maintained control of the government for more terms however I think his current path is risky and far from high likelihood of success, and raises the chance of an outcome with smaller overall pie, greater wealth gap, less capable/functional government, and no guarantee for a declining debt. And a much weaker geopolitical position.
I do believe his team wants a long term weaker dollar and to wind down medicare…both seen as mechanisms to reverse debt burden.
Competence and coherence seems to be in great shortage.
“A question i have is, can individuals buy products from outside the U.S say through eBay without getting imposed tariffs ?”
I’m not sure about other countries but for China:
All relevant postal items containing goods that are sent through the international postal network that are valued at or under $800 and that would otherwise qualify for the de minimis exemption are subject to a duty rate of either 30% of their value or $25 per item (increasing to $50 per item after June 1, 2025). This is in lieu of any other duties, including those imposed by prior Orders.
https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-closes-de-minimis-exemptions-to-combat-chinas-role-in-americas-synthetic-opioid-crisis/
Iron Mike
“Okay, a dollar shortage caused by lack loan growth is the mechanism.
Because the bank refuses to lend money. But why ?”
It can be a hard concept but basically it’s lack of confidence in collateral. Banks don’t feel that real economic risk is worth it because productivity (profits) are leveraged by energy. So they pull back on lending into the real economy and buy government bonds instead. The result is a global dollar shortage. The reserve currency is the Eurodollar which is ledger money created by foreign banks. That’s the real dollar market that liquifies international trade.
When HHH says other assets will get smoked chasing dollars he’s right.
2008 was a Eurodollar collapse no one wants to go through that again.
JT,
I am not sure or at the very least doubt banks look at energy at all. I can understand your point about collateral and productivity. But beyond this banks will continue to loan even though the asset might be unproductive. Say a house, as long as the population is expanding which produces the demand and banks are loaning money the asset will at the very least maintain its price if not inflate in price. Though the asset such as a house has limited productive ability (if any because it could sit there empty collecting dust) can inflate in value much more than a productive human makes annually. This is the case in Australia were a house in certain cities make much more than average income of a working individual even if it sits there empty.
Regarding 2008 not sure if that was a eurodollar issue as much as a domestic U.S issue. I think the USD fell sharply during the 2008 crash against the CHF and YEN. Wouldn’t that mean it isn’t a eurodollar issue ?
I understand HHH and your basic position, you guys are projecting a scenario were there is no coming back from because the underlying energy supporting the global economy is physically at an end. But under the microscope it seems a bit suspect to me. I think before such a event even comes to pass the sociopolitical turmoil will probably cause the fabric of social cohesion to completely break. Banks not loaning money will be the least of our problems in such a scenario. Such an event playing out in the short-medium term seems extremely unlikely to me. I think humans have access to relatively cheap energy for decades to come.
I think in the short-medium term at least, social and international cohesion breaking is more likely. As wealth inequality increases so will the political landscape in a world were people might feel like the system is no longer working for them. Protectionism, isolationism and a lack of international cooperation seems more likely to occur.
That is just one example i think, a lot of other issues pressing us. On the one hand environmental destruction, on the other declining birthrates and the need for economic growth, seems like humans are approaching a precipice in which we can no longer have our cake and eat it too. But what the hell do i know.
I completely agree Iron mike-
“I think in the short-medium term at least, social and international cohesion breaking is more likely. As wealth inequality increases so will the political landscape in a world were people might feel like the system is no longer working for them. Protectionism, isolationism and a lack of international cooperation seems more likely to occur”
And from where I sit it looks like Trump is a big accelerant to this risk scenario. No surprise there.
Iron Mike
There is an avalanche of problems facing humanity. But the focus I’ve focused on here is energy depletion. Traditionally people think collateral is purely an asset like a house so there seems to be no issue. However that simply isn’t true. If it was the only thing needed to obtain a mortgage would be an assessment. The collateral is actually the ability to repay principal with interest. That’s why they verify financial statements.
Banks aren’t smart enough to recognize that energy drives prosperity but are smart enough to know you have cash flow or you don’t.
So when HHH says energy is the problem he’s right. Banks don’t get it but that’s ok they’re energy blind.
Is money a stock or a flow? Very important to understand the difference and understand why it matters.
Stock markets have given back all gains since January 2024. So all the buybacks done over the last 14-15 months are underwater.
Right now if you’re a CEO the only fix is you go in and do more very large buybacks. Or else you risk the pullback in stocks going to a greater degree. If you wait any longer you will be underwater on the stocks you bought in 2023 and then 2020 and so on.
My view is they have to act and act now.
This will mask the underlying reality but what choice do they really have.
If companies start getting margin call on loans they used to do buybacks there will be a lot more selling coming. I think they will act soon.
I can tell you this. The largest buyers of stocks over the past 15 years aren’t participating in this sell off. And neither are the second largest buyers. Which are retirement funds. Neither are contributing to this sell off.
The CTA’s sold but once momentum flips they will be back long again.
HHH
Does it actually matter if the stock price of a company falls?
As long as it is making profits and providing dividends. Stocks should always be a long term investment.
Perhaps it is a good thing that short term speculators have got burnt.
Corporate debt in the US stands at $11 trillion. Stock buybacks that are purchased with debt aren’t even included in this figure.
So double the figure and then some. US companies are up to their eyeballs in debt. All of which will require energy usage to be paid back in the future.
So the companies have lost money on all the stock repurchases they have made since January 2024. Yet they are paying monthly principal plus interest payments on this debt. Which shrinks the money supply btw.
They have nothing to show for the debt they incurred by doing stocks buybacks since January 2024.
How do you invest in the long term future that isn’t going to be there?
You don’t. You load up the company balance sheet with as much debt as possible and you try to cash out before it all falls apart. I’m talking from the CEO’s point of view since their compensation is tied to stock values.
Stock values crashing makes that debt unproductive debt yet the debt remains and has to be repaid. Which is exactly why if this sell off continues or isn’t reversed shortly. Mass layoffs are coming.
Loadsofoil —
It does matter a little if the stock price falls, but you are right to call out American media (and Americans in general) for jabbering on about the stock price whenever they talk about a company.
Focusing on stock price has gutted American industry. For example, US carmakers are only willing to build oversized pickups because of the short term gain. The same thing happened to Harley Davidson, once a great company, now a niche manufacturer of novelty items. When faced with cheap high quality Japanese bikes, the chose a high margin niche over the hard slog of competition.
JT,
Banks are energy blind but what about the insurance companies ? Would they not take energy into account in their respective policies to insurance the banks ? I assume they do so when they are insuring an energy company, but banks yea not too sure.
Yes definitely agree, banks care mostly about cashflow. So in your end of the world scenario you are basically saying cashflow won’t exist. I assume before that banks will be gone. But yes if this scenario came to pass it will be a mad max kind of thing. But again it isn’t likely at all in my opinion.
I personally see money as a unit of energy. The more someone has of it, the more they can use energy in the shape they want it, or as a means to an end. And with energy obviously there is power too.
Iron Mike,
Thanks for the back-and-forth on this thread, it’s helpful.
I am following you and generally agree with you until your last point here about ‘money as a unit of energy’. Let me know if I’m missing something.
I think that this is the way the world ‘should’ work, and may even be the way it worked in the past, but I don’t see this now. Let’s say pre-1750, or before we really started leveraging fossil fuels. We were all working with energy and surplus available from the sun or small scale wind/hydro. Perhaps closer to the mark then? Population growth rates picked up dramatically when we started burning coal and then again after 1900. Step change.
Now to the present. First, this cannot apply in any type of uniform way across currencies today. There is too much variation in value for reasons not attributed to energy. As an example, consider the fairly frequent hyper-inflation seen in some currencies. Currency X suddenly has less purchasing power while currency Y does not. No fundamental link to energy there.
Second, there also seems to be little real link to useful work in the energy we use, whether that is due to fundamentals, taxes or other factors that blur the lines.
No?
Hyperinflation happens when currency is printed that has no debt attached to it.
Think Argentina, Zimbabwe, Turkey, or Germany 1920’s your talking literally printing money.
When a commercial bank makes a loan. It’s a debt that has to be repaid with interest.
Because of the interest expense more money has to be repaid than there was loaned out to begin with. More money is owed than was created.
There is a built in dollar shortage that grows with every new loan that is made.
It’s hard to get hyperinflation when the money supply is constantly shrinking each and every month when principal and interest payments are made on millions of loans.
The only way to offset this monthly contraction of the money is new loan creation. The only way current debt is repaid because of the fact more is owed than was loaned out is constant expansion of loans.
If all banks were to abruptly stop making new loans. Then all of the current loans would be unplayable.
There is a direct link between energy and banks ability to make loans. Not that they ever think about it. But if available energy shrinks for any reason those that are borrowing from banks their ability to repay their loans is compromised.
It might not take a lot of energy to make a loan but it does to repay a loan.
The money supply via commercial bank loans on a chart has to go up and to the right on an exponential curve or else there will be major problems. All deflationary problems.
I encourage all here to pull up a chart of M2 money and realize that chart has to go exponentially higher from where it currently is in order for the current debt to be serviced.
If you want to transition away from ICE vehicles. That M2 money supply will really have to go vertical and keep going.
It will take a lot of new debt to make it happen.
If you think that transition can be done when the energy supply is shrinking. I say good luck with your views.
T Hill,
Thanks for your input.
You make a good point. Especially with regards to international currency exchange. Where a currencies value relative to another depends on many factors.
I tend to look it at purely from a domestic viewpoint. If i am rich in country x, i might be considered poor in country y. However as a rich country x resident, being rich implies i have more energy and power to do what i want within a set border.
Now if a countries government decided to print excessively all that is doing is diluting the energy unit availability of that currency.
My view is very crude, but somewhat applicable i think, i could be wrong but if we observe “rich” people who have access to more money or have acquired more money they tend to have more energy expenditure in terms of houses they build, energy they consume (electricity), holidays they take, luxury cars & boats they buy etc. You see all these activities to me imply generally more energy usage or consumption compared to someone from the middle or lower class who has limited to no access to such activities and things.
T Hill
” We were all working with energy and surplus available from the sun or small scale wind/hydro.”
I’ll add that the energy pie prior to fossil fuel was primarily wood and animal labor- in the form of livestock and human…including captured populations around the world. Most people in the world were captured, with the fruits of their labors owned by others with militias or title.
And much of the forests in places like Europe, Mideast, India, and China, and later in parts of N.America were stripped down to be burnt. Wherever there were dense populations of humans.
We forget some of these things.
Most people in the prefossil days knew deeply just how important prime farmland/grazing land and forest lands was…the prime source of energy and sustenance. Soil and rain. Now many seem unaware of the basic elements.
Hickory,
Concur. I should have been a bit more explicit, but when I referenced the sun as an energy source pre-1750 that is exactly what I was talking about. Photosynthesis feeding animals and wood fires.
Spend some time in what is now the woods in the NE US and you can see a great number of old stone walls from when it was significantly deforested as you note.
Another thing about banks. Particularly Eurodollar banks that make all the dollar denominated loans outside the US
They like to match up their liabilities or the loans they have made with assets that are denominated in dollars.
Sure Japanese bills and Italian bills are used as collateral for dollars loans. Those loans are also more risky and cost more to do. And if you have to take collateral in the event of a default. You get Japanese and Italian bills instead of treasury bills.
There is FX exposure to account for so more risk.
These Eurodollar banks aren’t constrained from making loans by not having banks reserves. The only thing that constrains these banks from making loans is counterparty risks.
When the energy supply shrinks even just a little bit. Counterparty risks goes up and dollars will become more expensive to obtain.
In the long term, I agree that energy and non-renewable resources availability will drive the behavior of banks and the money system in general ( think decades). In the short term, the driving forces are more capricious.
My own experience was in Indonesia during the Asia financial crisis. During the 1980s and early 1990s southeast asia was booming with huge rates of annual growth, and visions of replicating the financial miracle of Japan. International lenders were financing the expansion because the local funds available were being devoted to the equity portion of the capital costs.
I worked for a consulting engineering firm that was selected as owners engineer for a large forestry project in central Sumatra ( 1.3 billion USD), because the principle owner only had experience in plywood. The owner had harvested large areas of natural forest, and replanted it with a fast growing local species of tree (acacia mangium, 10 years to maturity) then discovered there were no established commercial uses of that species.
Our firm developed the basis for using the wood, along with a feasibility study, and financial and legal firms from New York were added to the team. A composite team was assembled to attract financing, and they went on a dog and pony show through Asia, Europe and North America to showcase the project.
The lending environment was so aggressive that we were able to negotiate financing at attractive rates for more than one billion USD, with limited recourse for the lenders and joint and several liability for the lenders (some 50 of them) to provide the total amount of the financing package.
The project got underway, and then the Asian financial crisis hit Indonesia. In one week the Rupiah went from 2,400 to the USD to 13,000 per USD. Commerce froze, banks, ATM’s , businesses closed, most of the banks to never reopen. There were riots, looting, shops burned , lynchings. All of the Indonesian subcontractors on the site were bankrupt. Had to pull the site engineers out to Singapore temporarily.
Why did it happen – mob behavior! The international lenders got cold feet and exited the market en mass.
Old Chemist,
Yes, and the Asia financial crisis was at the heart a dollar shortage. It wasn’t because local Asia banks and authorities went and printed a whole bunch of money.
It was because dollars became very expensive to obtain because counterparty risk went through the roof. Virtually overnight.
Thanks for sharing your experience.
HHH
The counterparty risk was there all along – it was the banks perception of counterparty risk that changed overnight.
Some of the lenders tried desperately to withdraw from our financing; none succeded thanks to the work of the New York lawyers and financiers. Our project continued on to completion and started repaying the loans on schedule.
Imagine a scenario where oil and gas imports are drying up for everyone that depends on them.
This is going to play out over the next 10-15 years. Perhaps sooner. It depends on the flow of oil and natural gas.
The counterparty risk will be realized and dollar funding will dry up but existing dollar denominated debt will remain. And the banks will go bust because they have loaned out a bunch of money that can’t be repaid.
And unfortunately because central banks aren’t really what we are told they are. And their bank reserves aren’t used in the Eurodollar market. The swap lines between central banks are nothing but smoke and mirrors. There is no backstop that can re-liquify these banks. Governments will have no choice but to sell dollar denominated reserve assets in order to provide dollars.
China and Japan will end up selling every last treasury bond they own in order to provide the dollars that the Eurodollar banks just aren’t willing to provide.
A lot of dollars flow into Swiss bank accounts. These accounts will be raided to provide the dollar’s that the Eurodollar banks just aren’t willing to provide. Rich people are going to have to liquidate their accounts to obtain the dollars they need.
The so called safe haven assets will all be sold.
When the Italian and Japanese government bills start getting rejected as collateral for Eurodollar funding. It becomes way bigger than the 2008 crisis.
HHH
I see the possibility of things unfolding a little bit differently if BAU more or less continues. As the reality of an inexorable shrinking in the availability of fossil energy sources starts to register with lenders and investors, which of them will still be willing to invest in major projects with a payback of twenty years? Infrastructure projects built to last for 70 years?
I could see the emphasis shifting to repair of existing old plants, stringing out their life for as long as possible. The mining industry is already very good at that, as the ore reserves deplete they keep the processing equipment together with big welds and patches and duct tape, when the ore is gone the surface equipment is scrap.
Depreciating capital assets is a source of funds that can be used for day to day existence if you are not reinvesting.
Interesting times a-coming
It’s a small thing but a big thing at the same time. One can’t not wish them well.
ZOO’S TORTOISES BECOME FIRST-TIME PARENTS… AGED ABOUT 100
“The zoo said this week it was “overjoyed” at the arrival of four hatchlings from Abrazzo and Mommy, a pair Western Santa Cruz Galapagos tortoises. The births were a “first” in the zoo’s 150-plus-year history, it said, and Mommy – who arrived in 1932 – was the oldest known first-time mother of her species. Western Santa Cruz Galapagos tortoises are critically endangered in the wild, and there are fewer than 50 kept in US zoos.”
The hatchlings are part of the Association of Zoos and Aquariums’ breeding programme, aimed at the survival of species and genetic diversity.
https://www.bbc.com/news/articles/czrvlk8lnymo
Bond yields are up rather sharply today. Take note of this. It could very well be selling of US denominated assets in order to provide dollars that banks aren’t willing to lend.
I know everyone believes that the selling of US treasuries is de-dollarization. But the reality is the selling of US treasuries is an act of desperation to keep from having to default on debts. Governments selling to provide entities within their local economy dollars.
They don’t really have a choice. Unless they are ok watching their entire economy burn to the ground. Via local currency depreciation in a rapid fashion.
But this could also be signaling that the bottom is in for stocks and it’s ok to return to our risk taking behavior and buy stocks.
Just remember during the pandemic bond yields started to spike because in fact they were being sold to obtain dollars. Luckily it was short lived. And banks returned to risk taking and making loans.
When energy starts to shrink there will be no ok moment were it is safe to return to normal banking activity.
HHH
Bond yields going up is a bad sign. And it’s only happening here. (US) If there is desperation things are much worse than it appears.
Bond yields tend to follow each other because it’s global. And I just looked again a minute ago and yields in the UK, Australia and Canada have also spiked today.
Bond yields spiking in the US can cause major problems outside the US. Because at the margins US treasuries are the discount rate and everything else is priced off that.
It’s something to watch if it keeps going. It would definitely signal dollar shortage.
Japanese stock are going to close with a candlestick that has a long wick down. Super long wick down as prices dropped 9% early on but will close with and under 4% loss. This is usually a reversal. US stock after being down large then going positive, then being down large again are going to close flat to slightly up.
I’m heavily leaning towards a bottom here that gets bought. I think we have a little more ways to go before available energy shrinking really starts to kick in and markets and prices go down and stay down and never recover.
But at the time that spike in yields is alarming and something to keep close eye on. Definitely one of the largest spikes I’ve seen over the past 5 years. And the fact it’s happening in a massive stock market downturn doesn’t help with the confidence.
And whatever bounce we get. And I say bounce because that is what appears to be happening in some places. Might be short lived.
Gail predicted some years ago that there will come a time that the world could not afford expensive oil.
I wonder if that time has come?
https://ourfiniteworld.com/
Some interesting thoughts about debt and energy here
The one thing that needed to happen. Which is the US and China making a deal on tariffs hasn’t happened. Tariffs were actually increased.
We had the beginnings of a nice rebound in stocks.
Now oil is at $59 and looking to head lower.
Some things, going on in the USA today, remind me of the period preceeding the collapse of the USSR.
– The elderly in power: Are there no younger people? Sure there are, but they await the inevitable crash.
– The “Thruth”, Your Presidents social medium full of lies, resembles the Pravda (Russian for Truth), the state run newspaper in Russia those days.
– The bluff: “Look how great we are!”
– The messages to the own people: “Everything will be fine, just wait for it.” Declaration of a “Transition Period.”
– Reform of government administration, feels like “Perestroika”
– Issues with natural resources
– …
– Short: an empire at the end of its tether.
Good luck. Stay safe.
Don’t forget: “V Pravde nyet izvestiy, v Izvestiyakh nyet pravdy” (There is no truth in Pravda and no news in Izvestia.)
Our version might be: There is no reality in the media and only lies from the government.
China seems to be intervening in the currency market. They do this by having their huge state run banks sell treasuries. They say it’s selling dollars.
What they are actually doing when they do this is providing dollar liquidity. They are selling treasuries and using the dollars to plug holes. Which means they can source less from the Eurodollar market. Takes some of the pressure off their currency.
It’s the equivalent of using your rainy day fund though.
This is about 300 miles of Brownsville TX, in a semi-humid zone agricultural region-
“here we are: 48.0C/118.4F at El Pujal and Santa Rosa in Mexico on 3 April, highest temperature in the Northern Hemisphere so far in 2025 and close to the hottest in the world ever recorded for this time of the year.”
1865: Robert E. Lee surrenders to Ulysses S. Grant at Appomattox
I never understood why he wasn’t hung from a tree.
I drove once from Charlottesville to Williamsburg and from there to DC. I never before or since saw so many statues of one individual. For a century after the war he was the personification of a ignoble fight to save an ignoble way of life.
I used to think life as we know it was more likely to come crashing down as the result of ecological and natural resource issues than from political troubles.
There’s no doubt in my mind that the climate is going to go nuts……… but I don’t know enough to have a strong opinion as to how long it will be before people are starving starve by the tens of millions. This scenario could come to pass within the next decade………… or it might never happen. The population might peak and decline sooner than expected, maybe a lot sooner. Contagious diseases and hot wars ya know……………
With luck we might actually turn the corner on peak oil by going electric and giving up our energy wasting live styles. We might give up beef and eat down the food pyramid …….. if we are forced by circumstances to do so.
Peak material resource issues do not necessarily mean the end of industrial civilization. A runaway greenhouse effect does not necessarily mean we revert back to the Stone Age.
Some of us have survived and thrived everything Mother Nature has thrown at us for tens of thousands of years.
But it’s been less than a century since we’ve gotten so to the point we might actually wipe ourselves right out of existence in fairly short order.
It’s reasonable to say that we’ve avoided WWIII for the last eighty years or so because SO FAR level heads on all sides have prevailed knowing that nobody can win number three.
We call it MAD, mutual assured destruction. Ironic, isn’t it? It’s our best and probably only real safeguard, and it’s kept us alive longer than most of us have lived.
But I’m not at all sure this is the case any more.
When the cat’s away the mice can play. This general concept holds true at many levels from the neighborhood to nation states. A couple of motorcycle gangs control the drug trade in my neck of the woods, as is the case in many parts of the country. . They’re tough nasty people but they’re also business people. They like for things to run quietly, without attracting too much attention.
If some local redneck gets too big for his britches, stealing customers, attractinge attention, they pay him a visit, and explain the rules. He either plays by their rules, or winds up in a wheel chair or prison or dead.
The gangs mostly steer clear of each other but they’re very quick to react to anybody pushing into their turf. Sometimes they go to war with each other. At other times the possibility of such a war distracts their attention so that upstarts think the time is ripe to establish a gang of their own and have a territory of their own.
Now times are such that the larger more powerful countries of the world are experiencing troubles enough that they’re just not necessarily up to the job of keeping the peace any more.Various upstart wannabe dictators are bolder than ever, and countries such as the USA may have too many problems to play cop any more.
In our own case we’re fast losing the trust and faith of countries that have been our steadfast friends for a very long time. A new world order may be emerging. Some countries are going their own way. Some others may decide they’re better off being besties with Russia or China rather than the USA..
We may be only one idiot with a grenade or a pistol from WWIII.
Maybe the idiot that will start number three is contemplating doing something stupid enough to start it this very minute.
We’re maybe headed into a new arms race with some countries that up until the last decade or two had little or nothing in the way of arms industries manufacturing armaments of just about every sort short of nukes on the grand scale. There may soon be some new members in the nuclear club as well.
I’m too old to worry much about it. Too old and too broke to really do anything I haven’t already done anyway.But anybody young enough to have any real future prospects should be doing some really serious thinking about his or her personal future.
Bottom line, life is very much about playing the odds. We pay for health insurance, we exercise, we watch what we eat, we save for a rainy day, we try to avoid killer bad habits such as booze and tobacco.
If you’re young enough to have a future, maybe you ought to be thinking less about such things and more about moving to a place less likely to be reduced to ashes and rubble, a place where you can get drinking water from a well or spring rather than a public utility, a place where there’s some hope some local farmers will survive, where there are trees for firewood……….. and some houses have chimneys.
Of course you can run a stove pipe out thru a window…….. assuming you can put your hands on a stove and something to burn in it. And something to cook on it.
Good to hear you OFM. I don’t really know what top 5 risks to tell a young person to prepare for are…its a reverse cornucopia. In addition to developing a whole slew of skills, I think I’d aim towards electrical expertise.
Like in the old movie The Graduate ‘One word- Plastics’, except now I’d say “Electrical”
I’d be curious to hear how your regions people are reacting to their hero in the white house as the fun unfolds over this term.
I’m leaning more toward an unpredictable climatic disaster. The recent Roundup on world climate is simply hideous:
https://climateandeconomy.com/2025/04/10/10th-april-2024-todays-round-up-of-climate-news/
Good to see your Post OFM.
I don’t come here all that often lately . . . stay well.
Cheers.,
Who would have predicted this?
ENERGY DEMANDS FROM AI DATACENTRES TO QUADRUPLE BY 2030
“Processing data, mainly for AI, will consume more electricity in the US alone by 2030 than manufacturing steel, cement, chemicals and all other energy-intensive goods combined, according to a report from the International Energy Agency (IEA). Global electricity demand from datacentres will more than double by 2030, according to the report. AI will be the main driver of that increase, with demand from dedicated AI datacentres alone forecast to more than quadruple.”
https://www.theguardian.com/technology/2025/apr/10/energy-demands-from-ai-datacentres-to-quadruple-by-2030-says-report
Not encouraging.
LESS THAN 10% OF GLOBAL PLASTICS MANUFACTURED FROM RECYCLED MATERIALS
“Only 9.5% of plastic materials produced globally in 2022 were manufactured from recycled materials. The findings, reported in Communications Earth & Environment, are part of a comprehensive analysis of the global plastics sector, which also reveals a large increase in the amount of plastic being disposed of by incineration and substantial regional differences in plastic consumption.”
https://phys.org/news/2025-04-global-plastics-recycled-materials-reveal.html
1919
Emiliano Zapata assassinated
A new string Open Thread Non-Petroleum has been posted.
https://peakoilbarrel.com/open-thread-non-petroleum-april-10-2025/
An update to December Non-Opec and World oil Production has been posted.
https://peakoilbarrel.com/december-non-opec-and-world-oil-production-rose/