Eyes Wide Shut - "We Are In A Bad Spot"

Tyler Durden's picture


Submitted by Chris Martenson of Peak Prosperity,

After traveling some, speaking with lots of people, reading, and digesting, I cannot escape the conclusion that things remain hopelessly off track.  Whatever form of 'recovery' is being sought here simply will not arrive.

The core of my views is shaped by the idea that the very thing being sought, more economic growth (and exponential growth, at that), is exactly the root of the problem.  I suppose I would take a similarly dim view of an alcoholic trying to drink their way back to health as I do the increasingly interventionist central bank and associated political policies the world over.

Go on then, drink more, but I think we all know what the result will be.

The most pressing concept at the center of it all is the idea of net energy, or the energy returned on energy invested.  As I explained in the Crash Course, the price of energy is not really the most pressing that we need to keep track of.  Instead, what we care about is the net, or surplus, energy that is returned from our energy exploration and production efforts for society to do with as it wishes.

Figure 1:  This hypothetical chart reveals the energy returned (green area) on energy invested (red part) and postulates what trying to live in a world of 3:1 energy returns would look like visually.  Where petroleum finds of just a few decades ago where offering 95% or greater returns on energy invested, a future of 3:1 oil offers just a 66% return.

The above chart reveals the world towards which we are rapidly moving with new petroleum finds being deeper, tighter, smaller, and generally more difficult to get to and extract, thereby offering lower net energy returns than in the past.

If there's less 'green area' in which to organize ourselves, then we will simply have to do fewer things.  However, the idea that we are going to get increasing amounts of exponentially-growing economy in conjunction with falling net energy is simply nuts.  It is insane, or at least developmentally immature.

Predictions for a World of Declining Net Energy

The world around me makes a lot more sense when I think about it in terms of net energy and where we are in that story.   Everywhere I go, I simply see oil, oil, and more oil, expressed in jets in the air, cars and trucks on the road, abundant and varied food types at every time of the year, and stores crammed with consumer goods from hither and yon.  We truly live in the age of abundance.

Yet that abundance is heavily subsidized by petroleum as well as other fossil fuels.

Where the prior 150 years were defined by ever-increasing amounts of both gross and net energy, a remarkable experience unlikely to ever again be replicated, the next 150 will be defined by its exact opposite.

The predictions for living in such a world are impossible to make in terms of timing and magnitude, but the trends and direction can be pinned down.

The big picture items are these:

  • Living standards are going to fall.  Ever-rising gross and net amounts of energy provide the essential building blocks for rising living standards, both directly through the goods and services brought to our doorsteps, such as food and warmth and mobility, and indirectly by allowing lots and lots of people to deploy their talents to things other than securing the basics.  In fact, this process has already begun; it will follow the 'outside in' model where the weaker elements of society and the weaker nation states will absorb the first effects of 'less than there used to be.' 
  • Inflation will come.  Because of the tendency of humans to try and print their way out of trouble, and because the system is now so saturated with debt that 'allowing' it to crumble to meet the realities of a world of less would risk a catastrophic systemic collapse of institutions and ruling parties, there's not much doubt that sooner or later all this will end in a very scary round of inflation.  Some currencies will not survive at all, and the areas served by them will experience hyperinflation first and complete monetary destruction second.
  • Stocks and bonds will fail to generate real returns.  Real returns, meaning positive growth in the value of stocks and bonds after inflation is subtracted, are an impossibility in a world where the economy is not growing in real terms.  You have to have real growth in the economy if you want real growth in stocks and bonds (in aggregate, that is).  Stripping away all of the gobbledy-gook, real GDP growth is simply not possible without real increases in real things – and those depend, in very large measure, on how much net energy there is to go around.  With declining net energy, there will fewer things to sell and do. 
  • Retirements will be postponed, if they happen at all.  It is only the very recent generations that have been afforded the reality of this thing called 'retirement,' which is the idea that you can live off of one's prior savings and investments for a decade or three, consuming and not producing the whole time.  Not so coincidentally (to me, at any rate), retirement and the exploitation of fossil fuels came along at roughly the same time.  That is, with enough 'green area,' we humans can do anything at all that we want with all that surplus energy. We can go to the moon, we can take long holidays to distant places, we can host Olympics, we can retire or do any of a billion other things.  For many, especially those at the margins of society, retirement will simply not be an option.  Retirement as a concept, and these individuals specifically, will be casualties of circumstances.
  • We're just going to do fewer things and produce less stuff.  What exactly will go away as the green area gets pinched downwards is impossible to predict, as much will depend on decisions that have not yet been made.  Perhaps we'll do something completely surprising with our remaining energy, channel the spirits of Easter Island, and build some huge yet frivolous monuments to ourselves.  Perhaps we'll squander the last bits of good energy on bad wars that end up destroying infrastructure that could only be built when there was enough surplus to go around.  Or maybe we'll get it right and choose a future that we can strive for and use our remaining resources wisely to achieve those dreams. While the exact features are impossible to predict, we can say that the map of our territory will shrink.  We won't be able to do everything, or even very many things as compared to before. 
  • More resources will be dedicated to and consumed by the energy sector.  One easy observation to make is that if net energy is declining, then we are going to be spending more of our energy wealth on the process of obtaining more energy.  This is one great field to be in, whether in the production side or the efficiency side.  If it takes more and more energy to get energy, what does that mean?  It means more drilling, pipelines, processing facilities, and all of the thousands of job types and millions of parts and components that are needed to get the energy out of the ground and to market.  As prices inevitably rise, the desire (if not the necessity) of using energy more efficiently will skyrocket.  Everything in the entire "built" environment, from commercial and residential buildings, to factories, to how we move ourselves around, and the water we drink will be targets for improvements and enhancements.  If you are thinking of a career to move into, the energy sector is a great place to start.

Eyes Wide Shut

I think we're in a bad spot.  I mean the globe here, but the developed economies in particular.  I am losing hope that we will navigate towards anything other than a hard landing at some point because even with copious amounts of data accumulating suggesting that the old ways are not working, I cannot detect even the slightest hint of original thinking or new thoughts coming out of the marbled halls of power.

Business-as-usual and more-of-the-same seem to be the only operative ideas right now.  And that's not really unexpected; systems always try to preserve themselves long after it should be obvious that a new tack is in order.  So there's nothing really surprising here about where things seem to be headed.

But what is a bit startling to me is the number of individuals that have not yet caught onto the idea that things have permanently and irrevocably changed.

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Tue, 10/23/2012 - 17:54 | 2914146 jcia
jcia's picture

Where is SRSRocco when you need him?

Tue, 10/23/2012 - 18:01 | 2914156 Bay of Pigs
Bay of Pigs's picture

Or Stanley Kubrick.

Tue, 10/23/2012 - 18:18 | 2914208 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

The only way to help the proletariat is far greater tariffs on fossil fuel usage. I've been attending exiting late night meetings after work at my job with the government regulating small businesses. We've been discussing direct actions such as writing letters to politicians and spontaneous screenings of al gores best work in order to wake up the masses. We must wake up the masses - religion is the opium of the people, a great man once said. Capitalism and profit have become the new religion. It's up to us the put the proletariat first and wake up the masses from their slumber.

Join us in protesting for greater taxes on fuel usage.

Tue, 10/23/2012 - 18:50 | 2914323 fnord88
fnord88's picture

This article is wrong. Not only is energy going to get cheaper, but it will get more decentralized, leading to massive benefits for the human race. 15 years away at most from solar and batteries replacing power stations and oil. Along with other massive decentralizations coming in manufacturing and finance, things are not so bad.

Tue, 10/23/2012 - 19:02 | 2914371 sunaJ
sunaJ's picture

What I've been saying for 3 years now. Peak oil is about net energy return. We will always have oil, just not enough, so beware of governments that want to fight and kill over the last of it. It is a losing game that betrays our failure to innovate.

Wed, 10/24/2012 - 01:31 | 2915024 Tommy Gunner
Tommy Gunner's picture

Have you had your IQ tested lately?

It doesn't matter if the US is the ONLY oil producer.  If the value of the oil you pull out of the ground is only slightly more than the value you get out of it - then you can have 10 trillion barrels of oil - but it isn't going to do you much good.

The tar sands are expensive to extract - deep sea oil is expensive to extract - fracked oil is expensive to extract.

To put it in simpler terms for the thick fucks who don't get it - let's say we found an ocean of oil 5000 miles long and 1000 miles deep...on the MOON... we'd have oil a hell of a long time BUT, ______________________________

Now if your IQ is over 80 you should be able to fill in the blank



Tue, 10/23/2012 - 20:53 | 2914614 centurain
centurain's picture

The first satellite launched by the US was solar powered and left earth in 1958.  Per your theory of 15 years for government to magically create solar powered everything then we must already be in 1973...

Tue, 10/23/2012 - 19:58 | 2914500 CH1
CH1's picture

The only way to help the proletariat is far greater tariffs on fossil fuel usage.

Fuck off, thug.

Tax your own enlightened self.

Tue, 10/23/2012 - 20:34 | 2914575 DoChenRollingBearing
DoChenRollingBearing's picture

Yes, CH1, + 1

The free markets will lead us to a better way.  We do not need more taxes and .gov regulation.  

Maybe the solution to future energy declines will be buying less new stuff...  That might mean more replacement bearings...  I could live with that.

Wed, 10/24/2012 - 01:33 | 2915026 Tommy Gunner
Tommy Gunner's picture

So let me guess - you drive around in a Hummer with Milli Vanilli cranked up thinking you are the shit.

Well you are a piece of shit polluting my fucking air - and taking up my roads. 

In Europe it takes nearly a hundred bucks to fill up a small car - and guess what - that keeps the assholes with their SUV's off the road.

I am all for higher taxes on gasoline - how about we refer to it as the "KEEP THE ASSHOLES OFF THE ROAD TAX"

Wed, 10/24/2012 - 07:39 | 2915265 DosZap
DosZap's picture

Well you are a piece of shit polluting my fucking air - and taking up my roads. 

In Europe it takes nearly a hundred bucks to fill up a small car - and guess what - that keeps the assholes with their SUV's off the road.

I am all for higher taxes on gasoline - how about we refer to it as the "KEEP THE ASSHOLES OFF THE ROAD TAX"

Are you paying for the dudes Hummer, or gas?, HELL NO.............................

As long as the $$$$$ is not coming out your ass, screw you.Sick and tired of assholes telling others what they should be doing with their own money.Whoever the hell your talking about is paying taxes, and likely more than you,where do you get off thinking you have the right to tell someone else what they should drive, live in, as long as your not FOOTING the bill?.

It's his air, and roads as much as yours.

WHEN you start footing the bill then BITCH.

We have a 10 square mile District  full of assholes instructing us on what,when, and where we can do everything now...............the last thing we need as a Republic is individuals thinking they have the right to tell others how to live.



Tue, 10/23/2012 - 20:01 | 2914506 willwork4food
willwork4food's picture


Al Gore has more carbon making, footprint forming stuff than 50% of all Americans...the BS carbon scare was just so TPTB could suck more cash from us. I've got a much better idea what to do with these self assumed gods of finance and law and it involves new rope and a tree.

Join you for what? You.are.deluded.


Tue, 10/23/2012 - 18:00 | 2914158 mtomato2
mtomato2's picture

This article succinctly articulates the very concept I have been trying to describe to those I know and love for the past five years.  Drinking your way out of alcoholism ends in death,   Every.  Single.  Time.

Tue, 10/23/2012 - 18:08 | 2914179 Alea Iactaest
Alea Iactaest's picture

So you're saying it IS different this time?

Tue, 10/23/2012 - 18:16 | 2914203 DRT RD
DRT RD's picture

Isn't it funny that alcohol treats alcoholism.  

The printing is only a symptom of a much larger problem. It seems to me that the need for power, and prestige are at the root of the problem.



Tue, 10/23/2012 - 18:47 | 2914303 knukles
knukles's picture

Secretary closing meeting comments the other day:

"If anyone has a burning desire it can always be treated with penicillin."



Tue, 10/23/2012 - 19:04 | 2914373 MiltonFriedmans...
MiltonFriedmansNightmare's picture

The root of the problem....
Lust, gluttony, greed, sloth, envy, wrath and pride

Tue, 10/23/2012 - 18:22 | 2914220 Al Huxley
Al Huxley's picture

So far, sure, but that just means we're overdue for a success - so crack those bottles!

Tue, 10/23/2012 - 18:58 | 2914356 new game
new game's picture

wish-drink/think-drink more/realize-sober up/give up on the wish-think-hopium thingy


for the only reason; history of human behavior repeats.

nothing has changed about human behavior, just the circumstances...

just the period in time you are living; the later stages of the oppulance of about 80 years of growth/prosertity

all due to cheap energy.  thank you Chris, my thoughts exactly.

1 billion humans around 1900 and 6 billion one hundred years later all due to oil.

so what hapens when what Chris describes affects human numbers as a whole.

hmmm- not thinking about a pretty sight. some call it attrition...

Wed, 10/24/2012 - 04:30 | 2915146 THX 1178
THX 1178's picture

Yeah... its not the case that history repeats. Humans just never change-- never grow up. We never grew out of killing one another with swords en masse... we just found a better way to do it. KABOOM!

Tue, 10/23/2012 - 22:40 | 2914803 a growing concern
a growing concern's picture

Hell yeah!  We may be batting .000 right now, but one of these times we're gonna hit us a home run, fer shure!

Tue, 10/23/2012 - 18:36 | 2914267 Cash Is King
Cash Is King's picture

MT, LOL, I think that's Every. Single Malt. Time. No?


Wed, 10/24/2012 - 06:10 | 2915196 mtomato2
mtomato2's picture

I like a scotch old enough to order itself...

Tue, 10/23/2012 - 18:46 | 2914301 blunderdog
blunderdog's picture

Sobering up leads to death every single time, too.

It's just slower and less fun.

Tue, 10/23/2012 - 18:02 | 2914166 semperfi
semperfi's picture

Foward !

Tue, 10/23/2012 - 18:35 | 2914268 Thecomingcollapse
Thecomingcollapse's picture

Yes, the change is working..... just really really slowly

Tue, 10/23/2012 - 21:30 | 2914689 imbrbing
imbrbing's picture


Tue, 10/23/2012 - 22:49 | 2914816 NachoLiebor
NachoLiebor's picture

Forward all that debt to your kids and grandkids.

Tue, 10/23/2012 - 18:03 | 2914170 perelmanfan
perelmanfan's picture

"Where the prior 150 years were defined by ever-increasing amounts of both gross and net energy, a remarkable experience unlikely to ever again be replicated, the next 150 will be defined by its exact opposite." Yes, but - and here is where it gets interesting - perhaps the next 150 years will be defined by ever increasing amounts of gross and net efficiency. There is a discontinuity-damping factor to applying intelligence to processes once performed through massive and profligate energy expenditure. Just one example - printing and shipping millions of gross tons of paper books, vs. electronically selling e-books. The forces of de-materialization are potent. 

Tue, 10/23/2012 - 18:23 | 2914226 wretch
wretch's picture

Just because you don't see the electrons doesn't mean they're free.  Take the Amazon outage yesterday as a lesson.  In contrast, my paper books have shown tremendous uptime -- over 7 9's, at least!

Tue, 10/23/2012 - 21:31 | 2914692 imbrbing
imbrbing's picture

Mine too, until I spill my coffee on a page or the dog eats it

Wed, 10/24/2012 - 00:20 | 2914954 Incubus
Incubus's picture

I'm such a hedonist.  I enjoy feeling the pages. 


Tue, 10/23/2012 - 18:05 | 2914172 cossack55
cossack55's picture

It is quite obvious that if all the above is true, then we need to build more nuke plants on more fault lines. Problem solvede

Tue, 10/23/2012 - 18:51 | 2914328 lakecity55
lakecity55's picture

"Release the HAARP, Mr Spock."

Tue, 10/23/2012 - 20:05 | 2914518 Alea Iactaest
Alea Iactaest's picture

Cossack, please remind me which problem you are solving.

Tue, 10/23/2012 - 18:08 | 2914176 Seasmoke
Seasmoke's picture

retirement is a dumb idea.......retirement (public pensions) at the expense of others, is an even worse idea

Tue, 10/23/2012 - 18:34 | 2914263 Die Weiße Rose
Die Weiße Rose's picture

"retirement is a dumb idea....."

tell that to those fools who had to pay contributions into Pension-funds all their lives only to see their retirement funds plundered by out of control Governments to pay for the bailouts of rogue banks and pay-offs to corrupt politicians.

public pensions were taxes paid into pension funds by workers who believed they could trust the Government and the financial Industry to keep their hard-earned money safe.

But those tax-payer retirement funds were plundered, stolen and wasted

on bullshit !

Lets get this straight!


Tue, 10/23/2012 - 19:28 | 2914419 cossack55
cossack55's picture

I assume they also believed in the tooth fairy, Easter bunny, and Santa.

Tue, 10/23/2012 - 19:55 | 2914492 mvsjcl
mvsjcl's picture

Not everyone is an actuary. Their only problem is that they believed in good governance. Heck, even the Tooth Fairy occasionally tossed a buck here and there.

Tue, 10/23/2012 - 21:01 | 2914630 Cloud9.5
Cloud9.5's picture

   I have come to the conclusion that good governance is an oxymoron.

Wed, 10/24/2012 - 11:09 | 2915760 Col_Sanders
Col_Sanders's picture

The problem is they trusted someone else to do something they didn't want to take the time to learn to do for themselves.

They bought a pitch from a snake-oil salesman.

And they should have known better.

Tue, 10/23/2012 - 20:49 | 2914604 Bay of Pigs
Bay of Pigs's picture

What fucking contributions? 3%? LOL...like the teachers in New Jersey?

Try the private sector and let me know what you think about providing your "own retirement".

Wed, 10/24/2012 - 07:45 | 2915289 DosZap
DosZap's picture

"retirement is a dumb idea....."

tell that to those fools who had to pay contributions into Pension-funds all their lives only to see their retirement funds plundered by out of control Governments to pay for the bailouts of rogue banks and pay-offs to corrupt politicians.

public pensions were taxes paid into pension funds by workers who believed they could trust the Government and the financial Industry to keep their hard-earned money safe.

But those tax-payer retirement funds were plundered, stolen and wasted

on bullshit !

Lets get this straight!


Subsitute SS for Pensions, and you will be attacked.......................even though the SS was paid for by those SAME indiuviduals, even on a larger percentage than the Pensions.

Tue, 10/23/2012 - 18:30 | 2914178 FreeMktFisherMN
FreeMktFisherMN's picture

After just joining the business institutions program ( a minor at my university) in addition to being an econ major, I got added to the email listserv, and after getting emails about corporate recruiters from Chrysler and Allstate, I get one from the prof--a major Keynesian; even changed the name of his class and as the university has it, from intro to macroecon to 'intro to keynesian economics'--running the show and it reads "Oh yeah!" And then it links to i-banking internships at GS. 


God help us. 


Edit: I don't want to sound hyperbolic, because it's not like I didn't know how things work as far as .gov and academia colluding to further the keynesian agenda, but there's probably not a student who received this email from this guy who would stop to consider the ethics of supporting/working for a company like this or JPM, etc. that co-opts government and funds the corporatist state and goes hat in hand to the District of Corruption when it makes bad bets and needs bailouts, threatening 'martial law' if it doesn't get them.


Lead me not into temptation, Lord, but deliver me from evil.

Tue, 10/23/2012 - 19:15 | 2914399 Pants McPants
Pants McPants's picture

Good for your, MN.  As the saying goes, I wish I knew then what I know now....

In other words, I wish I knew as much as you seem to know while I was an undergrad.  Been a few years since undergrad (went to UST in St. Paul), but I had no idea what questions to ask. 

Tue, 10/23/2012 - 20:36 | 2914482 FreeMktFisherMN
FreeMktFisherMN's picture

Thanks for the compliment, Pants McPants. My brother goes to UST, by the way. I Pray that he stays out of the catholic dogma and sticks to true Biblical foundations.


I'll have to find a job I can live with. Might well mean I have to be self-employed, which is going to be critical if not already because counterparty risk extends obviously into reliance on someone else for one's paycheck. 


It's not been easy, what with my peers not at all aware let alone outraged at the Federal Reserve corruption, the reality of the indebtedness, etc., as well as immorality of it all, as far as seeming to be on an island with this mentality. Come on ZH often to talk to like minded folks. To fellow students, OTOH, going out on a limb is being 'conservative' as signaled by supporting Romney. 


Hope I can find a career path through commodities trading; think open outcry would be a hoot, or else consulting/wealth management for people, where I could implore them to hedge against inflation with PMs, tangibles, especially fixed income, but definitely not limited to just those folks whose incomes are not keeping up with inflation. I've even been applying for these kinds of positions and say on my resume' that I'm willing to forego completing the degree here (I'm a junior undergrad) because I'm serious about entering business world. Hopefully one of the recruiters/HR people realizes that just becasue I don't have a 'degree' doesn't mean I'm worthless and not to be considered. If I were in their shoes, I'd take it as a great attribute in that this person thinks for himself instead of regurgitating what the profs propagandize in pavlovian fashion.



Tue, 10/23/2012 - 23:34 | 2914876 Almost Solvent
Almost Solvent's picture

Pants McPants is a fucking moron.

Don't feed the feral animals here on ZH!

Tue, 10/23/2012 - 18:10 | 2914185 kito
kito's picture

nope, its never different this time....time for the new reagan/volcker to take things to the next level.....banks are recapitalized, consumers who defaulted on mortgages are back buying loans at 3 pct, hubbard will reign in the lliquidity, romney will wipe away regulations...romney will secure irans oil supply........the u.s. got its mojo back baby!!!................



Tue, 10/23/2012 - 18:14 | 2914196 RiotActing
RiotActing's picture

They're not picking Romney.... the guy is a moron. They are not going to let him anywhere near the presidency. Get a clue...

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