The rapid breakdown of globalization and financialization is upon us. Yet, the real economy, the one of food, energy, and shelter can decline gradually. The degree of decline of the real economy is contingent on the decline of the financial one.
This is currently very important because of all the areas of human agency against the decline of prosperity it is here where proper management can make a difference. This means rejecting the myth of progress that is firmly in place with global leadership.
This decline is involuntary but it is negotiable but it requires admission by the ruling elites of failure. This admission is sustainable growth is over. This includes the green version trumpeted by the progressive left. What is ahead is a much smaller economy. The process of gradual decline is manageable. The threat is doubling down on the status quo of sustainable growth.
This asymmetric process of the financial economy growing irrationally with the real economy contracting will play out for a time. This is the nature of elite governance. The elites will continue to socialize decline and privatize their gains. The system is now geared toward this incongruity with elite capture of all major institutions. Moral hazard is off the charts.
This means you the individual will have to adapt without help from the government. In fact the government is now your adversary in the process of rational mitigation of your personal decline.
I have been discussing this coming decline on this blog for 3 years. The buildup is over we are in the neighborhood of tipping. The key action is strategically get smaller and more simple. I say strategically because tactically this may mean growing. As a complex system breaks down it frees up niches of growth.
There will be places to grow. There still is an enormous amount of resources to support tactical growth within a macro decline process but this requires proper orientation. It requires acceptance and courage.
I am not going to go into these strategic and tactical steps because many of my previous posts have covered what can be done. Keep in mind many of you are urban. My message I focused on rural living that is green prepping. This means embracing biomass and localism. My message applies only marginally to the bulk of the population that is urban.
My message to urbanites is get out of cities or at least move to an orbit. Cities will not be sustainable but instead will double down on growth and centralization. This is a huge mistake but one that is preprogrammed. Yet, cities are where concentrated goods and services are that you will need to draw on.
I am referencing two great article from “The Surplus Energy Economy” I challenge you to read the latest posts because it intelligently explains what is now happening in the world economy. The current banking inflation crisis is explained by this discussion.
This site has very accurately framed the financial decline process. It also shows what is happening to the real economy and what is the real issues within both. It is all about energy value decline and the breakdown of the myth of progress.
The following is a discussion of notes I took from part 3 and part 5.
#248: The Surplus Energy Economy, part 3
Posted on February 11, 2023
A WORLD LESS PROSPEROUS
“prosperity. The conclusions set out here are that, whilst aggregate prosperity has gone into decline, the real costs of energy-intensive necessities will continue to increase. This creates leveraged downside in the scope for both capital investment and the affordability of discretionary (non-essential) products and services.”
Here the asymmetry is negative. Costs of essentials will rise as discretionary and investments follow gradually lower in size. Keep in mind many discretionaries are responsible for affordability of essentials. Declining economies of scale and decreasing velocity of money will further lower essentials affordability. It will not always be the case that prices become unaffordable but also there will be the case of lower availability and smaller portions. Leveraged here means the process is reinforcing.
“This idea – that innovation in the immaterial field of monetary policy can restore expansion to the delivery of material prosperity – has been tried, and has failed spectacularly, over a quarter of a century of futile financial gimmickry.”
Financial gimmicky is a manifestation of centralization and its wealth transfer to the powerful. It is an effort to maintain the prosperity of the few. It is a socialization of the downside and privatization of gains. It is essentially an indicator of late-stage social developments where the elites divorce from the real economy into a Ponzi Scheme that is essentially a private casino.
“Another claim is that technology can provide us with abundant, low-cost energy from renewables. As we saw in part two, this argument isn’t credible, because it overlooks the reality that the potential of technology is bounded by the laws of physics. Renewables cannot replicate the characteristics – including the density, portability and flexibility – of fossil fuels.”
This leaves us with the third, least palatable conclusion, which is that prosperity is deteriorating because we have no complete replacement for the fading dynamic of fossil fuels.”
It is important to realize the real economy and the financial one. The real economy is essentially energy driven. It is important to understand energy value is in decline and technology will not change this. It can slow the decline but not stem it. The real economies decline means the financial economy will become even more unstable and irrational.
“The outlook for prosperity itself is stark. Until recently, the global economy has carried on expanding, but at a decelerating rate. Now, prior growth in prosperity has gone into reverse. At the same time, the costs of energy-intensive necessities are increasing, not just as absolutes, but as a proportion of available resources. The resulting affordability compression undermines the scope both for discretionary consumption and for capital investment.”
Globalism and financialization are in terminal decline. This decline is rapid whereas the real economy’s decline is gradual. There is still lots of stuff and lots of skilled people. Systems are still in place but increasingly the real economy will suffer from abandonment, dysfunction, and irrational policy.
The rapid decline of globalism and financialization is uncontrollable because it is not sustainable and in many cases not real, the real economy’s decline can be managed or better mitigated. The important point that must be embraced this decline of our real economy can be managed but not without failure.
“value destruction’ has become unavoidable. This points towards disorderly degradation within the interconnected liabilities which are the ‘money as claim’ basis of the financial system.”
Two kinds of value destruction are now in play. One is gradual and one sudden. Those aspects of globalism and financialization that create excessive wealth from the leverage of interconnected activity will see a sudden drop in value. Globalism where parts are shipped over distances and assembled with dispersed origins will see significant failure.
Financialization that relies on free-flowing liquidity will decline rapidly as confidence falters. Liquidity at these scales is essentially confidence. Negative confidence will sever the link of financialization from the real economy.
“The basics, at the aggregate level and in per capita terms, are summarized in Fig. 8. Between 2021 and 2040, both energy consumption and underlying output (C-GDP) are projected to decline by -8%. With ECoE likely to rise from 9.4% in 2021 to over 17% by 2040, the fall in aggregate prosperity is leveraged from -8% to -16%. Further (though decelerating) increases in global population numbers indicate that prosperity per capita is likely to be 27% lower in 2040 than it was in 2021.”
These numbers are dramatic but deceptively because most people can imagine living with less. We can all imagine an 8% drop in our standard of living. This kind of drop would be tough but we would just have less discretionaries like leisure and comforts. There would be more work as we find second jobs.
In the real economy of things this is not the end of the world. In the world of globalism and financialization it is the end. In fact, sustained declines of very small amounts spell the end of globalism and financialization. It is this reality that needs to sink in to you the individual. The world as we know it will change rapidly in a forced decentralization that is the unwind of globalism and financialization.
“secular stagnation”, meaning a non-cyclical deterioration in the rate of economic expansion.”
“Between 2007 and pre-pandemic 2019, real GDP expanded by 48%, but debt increased by 81%. Each dollar of reported growth now required the creation of more than $3 of net new debt. Fully 64% of all the “growth” recorded between 2007 and 2019 was cosmetic.”
“We can best describe the period since the second half of the 1990s as a quarter-century “precursor zone” to the involuntary economic de-growth that has now arrived.”
“During this long period, economic output and prosperity have followed a process of deceleration, stagnation and contraction. In denying this, and trying to fix a material problem with financial tools, we have created an asset bubble”
It is important to realize this will not be like the great depression. This decline will not be followed by a rebound. This will be a drop to a new level of stability that systems go through when stable thresholds are breached. In the case of human civilizations this means a new order. The old order will be no more. Since we have the real economy that is in gradual decline this process has the potential to have value inertia. It is in our hands how dramatic and swift this decline will be when globalism and financialization end.
“comparative complexity. The high levels of complexity in the Advanced Economies result in upkeep expenses which increase these economies’ sensitivities to rising ECoEs.”
“Based on SEEDS analysis, aggregate global prosperity is likely to have peaked last year, at $88tn and will, by 2030, have fallen by a seemingly-modest 3%, though even this will equate to a 10% decrease in per capita terms. By 2040, aggregate prosperity is expected to have fallen by 16%, and its per capita equivalent by 27%, from their 2022 levels.”
Comparative complexity in globalism is really transnational. Upkeep expenses are more related to supply chains then national economies. That said once globalism breaks down it will be the comparative complexity of the nation state that will take on increasing importance. Real components to those economies like food, energy, water, and infrastructure will matter much more as supply chains shrink. Where you live is going to matter much more soon.
“What we are watching is a two-stage process in which, just as top-line prosperity is falling, the real costs of energy-intensive necessities are rising. This creates a process of affordability compression which has far-reaching implications.”
“In essence, affordability compression doesn’t only mean that consumers are going to have to adjust to a decreasing ability to make non-essential purchases. It also means that households will find it an ever-greater struggle to ‘keep up the payments’ on everything from secured and unsecured credit to staged-payment purchases and subscriptions.”
This affordability compression will be a two track one. Anything that is not of real value will deteriorate rapidly. Unsustainable activities and value that is not based on the real economy of physical value will quickly be destroyed. This destruction will take real value with it because this is what abandonment, dysfunction, and irrational responses do. This value destruction is essentially systematic on one hand and physical on the other. How you position for this is critical.
This is why REAL Green focuses on green prepping. What is green is more prepped. This means embrace biomass, physical labor, and localism. Prepping means using the system to leave it. Lots of resources will be available. Many will be stranded but through triage and salvage can be repurposed. Most importantly if you can relocate out of the most vulnerable places. Stop believing in the myth of progress.
#250: The Surplus Energy Economy, part 5
Posted on March 1, 2023
WHAT HAPPENS NEXT?
“On the one hand, the economy itself is subject to trends which, whilst adverse, are essentially gradual. On the other, the financial system has been managed (meaning mis-managed) in ways which seem to eliminate any possibility of managed decline.”
“two, seemingly-contradictory conditions, and then turn to what some of the implications of this asymmetry might be.”
In this next segment Surplus Energy blog gets more specific. Gradual and sudden decline is looked at to see what is ahead.
“This favorable outcome is, in fact, extremely implausible, for two main reasons. First, scale expansion of the magnitude required would demand vast quantities of concrete, steel, copper, lithium, cobalt and many other inputs which, even where they do exist in the requisite quantities, could only be accessed and put to use using correspondingly vast amounts of energy. Since this could only come from fossil fuels, there is an ‘umbilical link’ between the ECoEs of renewables and those of fossil fuels.”
“The second obstacle is even more fundamental. It is that renewable energy is less dense than fossil fuels. The economy operates by using energy to convert raw materials into products, a process whose thermal counterpart is the conversion of energy from dense into diffuse forms, the latter being waste heat. The lesser density of renewables lies at the heart of the practical obstacles to transition – these obstacles include conversion efficiency limitations, intermittency, and the problem of storage.”
“These considerations mean that, whilst a sustainable economy might be possible, it would be smaller than the economy that we have now. Simply stated, “sustainability” is feasible, but “sustainable growth” is a pipe-dream.”
One of the most dramatic dismissals of the myth of progress that the globalist and their progressive allies fail at is the projections of the scaling up of renewables. While renewables are vital to the coming energy value decline, they will not support growth. They will only dampen decline and this will only be the case if they are properly embraced and applied. This is not the case currently.
They are being embraced as an energy transition paradigm by the techno-green left. They are being applied wrong in a centralized effort to replace a higher density energy paradigm. Renewables should be applied in a decentralized effort that takes into account their deficiencies.
Intermittency and lack of long-term storage are prime factors to adapt to. The other issue is fossil fuels will have to be maintained relatively at current levels as decline lowers their availability and energy value. In coordination with fossil fuels renewable applications can make up for value loss. This means zero carbon policy is a dangerous and one that could cause a dirty cascading decline that will be worse than living with fossil fuels that are already in decline.
“material leverage. Essentially, the economic resources made available by the use of energy are deployed in three ways. The first of these is the provision of essentials. The second and third, which are the residuals in this equation, are investment in new and replacement productive capacity, and the provision of discretionary (non-essential) products and services to consumers.”
“the economy has already entered a contractionary process, and it’s important to emphasize that visible trends in the material economy, whilst adverse, and even daunting, are essentially gradual.”
“ECoEs haven’t jumped from 2% to 10% overnight, but over four decades. Energy supply itself is likely to be driven downwards by deteriorating economics”
“the overall decrease in energy availability can be mitigated, though not reversed, by increases in supply from other sources, including wind, solar, nuclear and hydroelectric power.”
“There are two problems, though, with any possibility of gradual or managed economic decline. One of these is the financial system, and the other is a collective and absolute refusal to accept and plan for any possibility other than the mythical (and utterly illogical) prospect of ‘infinite growth on a finite planet”
Here we see the importance of proper policy and the danger of the myth of progress that is really a secular religion complete with priests and scribes. This science-based spirituality means honest objective science is no longer followed if it is contrary to the narrative of progress.
This has resulted in a tendency towards fascism with the centralization of corporate and statist stakeholder governance. Marxist power projection policies of lying, cheating and stealing for an “ends justify the means” approach.
While we can mitigate this decline with decentralized approaches and proper policies this will not be the case with the current global leadership in the west and China. Here we see a move towards centralization, technocracy, and human control. This will result in increased malinvestment at a time of rapidly declining resources both physical and abstract.
“A case can be made that, under the shot and shell of the GFC, the authorities were justified in using QE, ZIRP and NIRP to steady the ship. These, though, did not turn out to be the “temporary” expedients claimed at the time of their introduction. Even conventional economics would have counselled that negative real rates, reckless credit expansion and the creation of a gigantic “everything bubble” in asset prices could only end badly.”
“We can, in the meantime, attach high levels of probability to two processes. One of these is contraction in discretionary sectors, and the other is cascading defaults, commencing at the outer perimeters of the financial system and then travelling inwards towards the regulated banking sector.”
“ we face an inflationary rather than – or rather, as well as – a hard default resolution to over-inflated capital markets and ludicrously unsupportable levels of liabilities.”
This concludes his analysis and amazingly just ahead of the banking sector implosion we are seeing in the news. What we are seeing in real time is the defaults traveling inwards. The results will be inflationary with higher prices but also deflationary with less available resources which to the individual is similar to what inflation does. Things will cost more with less available.