Gail Tverberg: Something Has Got To Break

Submitted by Adam Taggart via PeakProsperity.com,

Actuary Gail Tverberg explains the tight correlation between the rates of GDP growth and growth in energy supply. For decades, energy has been becoming more costly to obtain, and instead of accepting lower GDP growth, we have been using debt to fund further energy exploration and extraction.

That strategy has diminishing returns, Tverberg warns. And we are close to the moment of reckoning: 

The more we look at it the more we see that the rate of growth and energy supply is very closely correlated with the rate of GDP growth. And I know on some of my recent posts I’ve included a chart that goes back to 1820 that shows the same correlation. You have to have an increasing supply of energy in order to get GDP growth. The GDP growth tends to be a little higher than the energy growth. That’s especially the same when we made the change in the mid 70’s, when we had the big first oil crisis and we realized that Japan had already started making small cars, and so we could make smaller cars, too, and save quite a bit of oil very quickly. And we realized then that we didn’t have to burn oil to create electricity; there were a lot of other alternative approaches, including nuclear. So we pulled those off line, and where home heating had been done by oil it was easy to transfer that to other types of energy. So we had a number of different things we could do very quickly back then -- and I think people got the idea that because we could pick the low-hanging fruit, then somehow or other we could do the same thing again. But we’re not getting that same kind of effect any more.

I think the thing that people don’t realize is how closely the growth in debt is tied to the growth in the economy. Even back many years ago we needed to add more debt as the economy attempted to grow, and what you would see very often back then was some country would add debt to fund a war. And if they were successful, maybe they would get some increment into the economy so that the debt made sense. And if they lost the war then somebody got their bonds written off. But what’s happened is that, as the cost of energy has gone up, especially since about the mid 70’s, the amount of debt required to find GDP growth has gone way, way up. And I think this is because it takes a given quantity of energy in terms of BTU’s or in terms of how far it can make a truck go -- if it now costs a whole lot more to do that, we’re going to have to borrow a whole lot more money in order to make the whole system operate. We have a seen a spiraling of debt since the mid 70’s, and I think that’s very much related to the higher cost of energy since then.

That only works for a while. You can dial up your debt growth for a while but then you discover that debt growth has a lot of adverse effects. And one of the big ones is that it tends to funnel money to the wealthier class and take money away from the poor members of society.

I’m afraid what it means is that at some point there’s got to be a discontinuity. Something has got to break. 

Click the play button below to listen to Chris' interview with Gail Tverberg (61m:03s):

Comments

[bid the soldier...]

It will run out of accessible crude oil, leaving only inaccessible crude oil. Not hard-to-reach oil or very expensive oil, but none to get your hands on.

For all intents and purposes, the planet will be out of oil. 

[Victor999]

Happy to see that RM is no "conspiracy theorist" with his "death control systems".

[Pabloallen]

THIS SHIT IS ALREADY BROKEN BITCHEZZZZZZZZ

[bid the soldier...]

While Tverberg does not prove my strange and unusual theory of what happened in the last half of the 20th century which brought us to where we are now, it certainly reinforced it for me.

in the mid 70’s, when we had the big first oil crisis 

"The 1973 oil crisis began in October 1973 when the members of the Organization of Arab Petroleum Exporting Countries (OAPEC, consisting of the Arab members of the OPEC plus Egypt and Syria) proclaimed an oil embargo. By the end of the embargo in March 1974,^[1] the price of oil had risen from $3 per barrel to nearly $12 globally.

The embargo was proclaimed because of the Yom Kippur War: the 1973 Arab–Israeli War, a war fought by the coalition of Arab states led by Egypt and Syria against Israel from October 6 to 25, 1973.

But the '73 crisis really wasn't a crisis at all.  It looked to be punishment for the US constant backing of victorious Israel.

 BUT HERE'S WHAT IT REALLY WAS

In 1956 M King Hubbert proposed a the peak oil theory. "he presented a paper to the 1956 meeting of theAmerican Petroleum Institute in San Antonio, Texas, which predicted that overall petroleum production would peak in the United States between 1965, which he considered most likely, and 1970....   Hubbert became famous when this prediction proved correct in 1970.

The first reaction to the truth of Hubbert's theory came from President Nixon who closed the gold window in 1971.

 Economists cite many reason for him doing so. " negative balance of payments, growing public debt incurred by the Vietnam War, and monetary inflation by the Federal Reserve which caused the dollar to become increasingly overvalued in the 1960s."

The real reason was the truth of Hubbert's peak oil theory and the fact that America was going to be an importer of crude oil for a long time, and we had no intention of depleting  our horde of half the world's gold to pay for it.

Then we arranged that Syria and Egypt would attack Israel, lose the war, and OPEC would raise the price of oil from $3 dollars to $12. Saudi Arabia thought they died and gone to heaven.

Here's what we went through because of Hubbert's prediction.

 Japan had already started making small cars, and so we could make smaller cars, too, and save quite a bit of oil

 we didn’t have to burn oil to create electricity;

home heating had been done by oil 

So the 1973 oil crisis was caused by the accuracy Hubbert's Peak Oil Theory.  Nixon closed the gold window for the same reason.  The Arabs attacked Israel in 1973 because we convinced them to, so the price of crude oil would quadruple and consumption would be reduced.  Israel beat Syria and Egypt because we told Israel of the plans we had suggested to the Arabs for their invasion.

In 1974, Hubbert projected that global oil production would peak in 1995 "if current trends continue".

Peak global oil did occur in 2005, 2006, but by the time oil production got temporary relief by the addition of shale production, the USPTB had gone berserk in their quest to commander all the oil on the planet.

Whether or not any one from the Pentagon or the White House ever asked Hubbert when the planet's crude oil would significantly run down and affect the economies of nations?

Even with deep sea drilling, Arctic drilling, oil sands and oil shale, high tech recovery from existing wells, about when would the world feel the pinch?   

No one knows if Hubbert were asked that and if he were no one has told the answer he gave.  But what everyone does know, is that a recession/depression is highly desirable and would leave many years of oil in the ground for future consumption.

Enter Alan Greenspan in 1987 and the subprime mortgage fiasco of 2008, followed by the never ending weak recovery and also weak euphemism.