Tuesday, February 25, 2014


Whilst I don't agree with every point in this piece below, it is true that America's economy is energy based. However, the financial industry does control our economy. They can drive price of energy up and down almost at will. For example, part of the economic collapse of 2007-8 was "manipulation' of oil prices - by Goldman Sachs especially. On one side of the trading house they were promoting that oil would hit as high as $200/b. On the short side of the house they were predicting a drop to $75/b. We would have had a "normal recession" from oil pricing without the collapse of the mortgage industry, which can be said to have "covered up" the oil price recession. Some will disagree with this, but it is real. 
This article is from Eric Horne, a respected friend and trader. I consider Eric most learned in energy and the economy.

Our Economy Is An Energy System, Not A Monetary System   

Investors should understand that debt is actually a future call on energy. When you owe money, you've already spent e. nergy forward. In other words our economy is an energy system, not a monetary system.

Economists around the world have got it all wrong by focusing on money as the key driver of economies.

Instead, money is the language rather than the substance of the real economy. The real economy is a surplus energy equation, not a monetary one, and economic growth as well as the increase in population since 1750 has resulted from the harnessing of ever-greater quantities of energy.

In fact, modern society and economies began when agriculture created surplus energy. Before agriculture, in the hunter-gatherer era, there was an energy balance where the energy which people derived from food was largely equivalent to the energy that they expended in finding the food.

Agriculture changed that equation. It allowed for the creation of surplus energy. In essence, three people could be supported by the labor of two people, allowing one person to engage in non-subsistence activities. This person could make better agricultural tools, build bridges for better infrastructure and so on. In economic parlance, this person didn’t have to concentrate on products for immediate consumption but rather the creation of capital goods. The surplus energy equation allowed for that.

The enormous increase in wealth we've seen worldwide over the last 150 years has deteriorated and will eventually stop. There will be no more growth until we enter the next energy paradigm because cheap energy fuels growth. From a mathematical point of view, you cannot increase growth based on monetary measures, you must also have increasing amounts of cheap energy. Energy consumption per capita is going down, and that means real wealth is also going down. All the debt we've accumulated is simply a noose around the neck of society.

Without cheap energy availability our economy will fail!

Deflation is winning the battle over inflation. Excessive debt has to be deleveraged and in that deleveraging process, asset values will plummet. For central banks working under a fractional reserve system, deflation is a ticking time bomb.

The real economy is energy and the days of surplus energy are coming to an end, so too is economic growth.

The economy, as we have known it for more than two centuries, will soon cease to be viable unless we find another source of cheap, probably renewable energy.

- The real economy is a surplus energy equation, or the harnessing of ever-greater quantities of energy.

- That equation has deteriorated to such an extent that one can now declare the era of cheap energy over.

- If the economy is energy and cheap energy is gone, future economic growth will be greatly inhibited or cease.

- Consequently, higher energy and agricultural prices can be expected in the long-term.

We are at a very important tipping point where surplus energy  becomes much harder to come by and much more expensive   We’re coming up against resource constraints that will inhibit economic growth for the foreseeable future.

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