The Perfect Storm

My colleague Dr Tim Morgan has just published this piece of research “Perfect storm: energy, finance and the end of growth”:

It is disturbing, and although it is 82 pages long I recommend that you take the time to read it.

Tim covers the end of the credit super cycle and the diminishing impact which increasing amounts of credit have had on economic growth; the negative impact of globalisation for the developed world; the self delusion and ignorance of our true plight which has been caused by the corruption of data for critical items such as inflation and GDP; and last but by no means least the deteriorating equation for Energy Return On Energy Invested or EROEI.

It should cause some pause for thought about some of the panaceas being proposed for the current crisis, most particularly ever increasing amounts of government borrowing and spending, and even the efficacy of the much vaunted US shale gas rush.

Tim has been questioning the expected economic growth rates from very early in this crisis and I have seen his work dismissed by many including some in government who have subsequently looked shocked and surprised when the growth that they expected has not materialised.

I also expect Tim’s thoughts will continue to fall on deaf ears for the neo Keynesians who maintain that the reason for the lack of growth is simply that we have not stimulated by borrowing and spending enough.

Comments

[Andrew]

Thanks for posting this, extremely interesting

[Han]

I have read the report. Its worrying, but a question: should we not be aiming to "chain" EROIE techniques so as to multiply and then store energy?
That is, if the EROEI is dropping for most sources of energy, if we set aside a finite amount of input energy X and use it to access a multiple of X (say just 3 times) then we haev 3X which we can then set aside to inout again so we get 9X etc. 4 such steps should result in 81X of energy, for 1X set aside.

[Graham Brown]

What does this mean for the average Joe individual? What steps can he take right now to prepare?

[Midgham]

A good read; puts into a mere 84 pages what 5 years worth of conventional economists are still only now beginning to figure out. The funny thing is that the paper's section on statistics reflects what Jo Public has probably been thinking or suspected for the past decade.

You are in agreement with a great many energy consultants that the Hubbard curve maximum is imminent - my further question, given the future constraints on investment you suggest, would be what do we do in order to mininmise/ manage the crisis' worst effects?

Other than retreating to a bunker packed with Noah's Ark like supplies, loads of ammunition and means of sustenance, what do we do/ invest in? Those solutions that do exist need to be projected more into the mainstream media. If Cuba managed it in the 1990's I am sure the "West" can when the time comes!

[Geoff Rowlands]

Clearly, there are hard times ahead. I guess the the best way to prepare is to examine the fundamentals and forget about anything else. Get out of debt. Find somewhere to live where you can be reasonably self-sufficient - not in a city.
Not everyone can do this, but not everyone will be willing to give up on the luxuries.

[keith price]

A little overly pessimistic in terms of timing (in my opinion) but as there will not be any pre-warning of the meltdown where does one put any money/investments to protect themselves. I assume accumulated cash will be worthless (with hyper inflation), shares will have little/no value, property outside the UK will be valueless as countries will become Xenophobic when their economy collapses and property in the uk will be unsaleable. How about uk farmland?

[MickC]

Interesting report.

Certainly it looks as if one the previous reports, questioning whether the UK can actually achieve growth at all, is being borne out.

[Will D]

Thank you for the link. I followed your updates as Tim was producing it. The final report is brilliant (and disturbing).

@Han
Think of it as 3 barrels of oil out of the ground for every 1 invested in finding it and bringing it to market. It doesn't make sense to 'chain EROI techniques' any more than you chain one year's compound growth of 10% to another year's and then quote 21% return.

@Graham
GGG - Gold, Guns and a Get out plan!

[Goose]

May I recommend Matt Ridley's 'The Rational Optimist' for an alternative point of view.