Authored by Charles Hugh Smith via OfTwoMinds blog,
We’re going to get a synchronized global dynamic, but it won’t be “growth” and stability, it will be DeGrowth and instability.
To understand the synchronized global meltdown that is on tap for the 2021-2025 period, we must first stipulate the relationship of “money” to energy:“money” is nothing more than a claim on future energy. If there’s no energy available to fuel the global economy, “money” will have little value.
The conventional economists assure us that energy is now a small part of the overall economy, so fluctuations in energy prices will have a limited effect on global prosperity. But what’s left of global prosperity when energy is unable to meet current demand at any price that consumers can afford?
The current “economic understanding” of energy and “money” is an artifact of a unique period of cheap, abundant fossil fuels. It is an article of faith in economics that energy will always become cheaper and more abundant as the pixie-dust of technology is irreversible. By the time fossil fuels become scarce many decades hence, we’ll all have cold-fusion generators, or micro-nuclear power plants or nearly free electricity from solar panels, and so on.
This is of course complete rubbish. To scale up any energy source to replace fossil fuels will require decades and tens of trillions of dollars in capital investment. In other words, energy development is a financial dynamic. Technology is only the first small piece of a much larger puzzle.
This becomes clear when we ponder the unwelcome reality that the fracking miracle has resulted in $250 billion in losses. You mean all those companies lost money exploiting the miracle technologies of fracking?
My point is profits are not guaranteed in any industry that requires trillions in new investment before it earns a positive return. The financial graveyard is littered with the carcasses of costly energy technologies that were supposed to “save industrial civilization” with some new clean source of essentially limitless energy.
Conventional economists also tend to overlook the impact of rising domestic consumption of oil exporting nations. A funny thing happens when domestic demand rises with population and prosperity; the exporting nation may pump the same quantity of oil, but there’s no longer much left to export.
Then there’s the fantasy that governments can’t go broke because they can always print as much money as they need. Venezuela proves this is correct, right? Oops, sorry: Venezuela proved that this faith in the power of the central bank/government printing press is rubbish.
You can’t print more oil. You can print more future claims on oil (i.e. “money”), but all that does is devalue the existing stock of “money.” Print enough “money” and all your “money” loses its purchasing power.
Inflation has a peculiar feature: printing more “money” doesn’t solve the decline in purchasing power of inflation, it accelerates the decline in purchasing power. The mainstream has grown accustomed to the fantasy that all financial difficulties can be solved by central banks creating more credit / “money.” But when inflation in real-world essentials like energy kicks in, expanding the pool of “money” and credit won’t solve the supply-demand imbalance–it will only devalue the purchasing power of all existing “money,” impoverishing everyone holding “money.”
The third crisis is governance: around the world, regardless of the ideology or form of governance, the quality and legitimacy of governance is crumbling. Ruling Elites are doing everything they can to keep the privileged-insiders-plundering status quo intact, but the Elites’ policies are hollowing out their economies and weakening the buffers supporting increasingly fragile civil societies.
The financial, energy and governance buffers will all start collapsing in a global synchronized meltdown in the 2021 – 2025 period. Why synchronized? Because the global financial and energy markets are one system. Once the system’s buffers collapse, everyone dependent on trade, global finance and energy will collapse in a domino effect that will start with the weakest periphery nations. No nation or empire will be immune, as all the major powers rely on “money” with phantom value and energy that can’t be printed by central banks.
Here’s my diagram of how buffers weaken beneath the phony facade of “endless prosperity”:
Venezuela’s “money” exemplifies the future of all “money,”, including the euro, yen, yuan/RMB and the U.S. dollar. There is nothing inherently permanent or valuable in “money” printed by central banks or governments; they are nothing but fast-accumulating claims on a diminishing supply of future energy.
We’re going to get a synchronized global dynamic, but it won’t be “growth” and stability, it will be DeGrowth and instability. The harsh realities of energy, “money” and mis-governance will come home to roost, and all the fantasies that technology and central banks printing “money” will save us will dissolve into thin air.
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