Ruminations of a Rundown Replicant

Affordable Liquid Dense Energy

The blog's been diverted of late. It's time to get back on point.

This is what's coming to get you.

We're running out of affordable, liquid, dense energy. Why else would we be drilling under water, squeezing oil out of rocks and sand, and preparing for war, to name a few? Do you know when the 100 million barrels per day stops?

Affordable refers to the price we can afford and that enables producers to stay in business. We're moving to a price that we can't afford because we're loaded down with debt, and other rentier imposts.

The crisis is really in liquids. Oil is dirty but indispensable. Oil and gas power food production, which is akin to mining.

If you want to maintain modern living standards, the fuel must be energy dense. The candidates are fossil and nuclear. You can't have anything connected to or part of an electricity grid or battery without fossils.

This is the chart1 you should be monitoring.

Every morning, it should be eat breakfast, check oil prices.

The chart is telling us that more and more household income is being diverted to servicing debt at the expense of spending in the job creating real economy .

Incomes are being squeezed by pandemic impacts in the private sector, and inadequate spending in the government sector. Households (and businesses) have no option but to balance the books by going into more debt. This has been ScoMo's strategy in the most indebted country on the planet. He is in charge of an entity that creates money out of thin air (subject to inflation) but he would prefer that everyone go further into debt. And, he doesn't understand that government spending (and another government's spending (China)) saved us from the GFC. It's neoliberalism writ large.

The banks are loaded up with debt that can never be repaid. One day they'll have to confront it by writing it off. That's when the shit hits the fan. That's when there's a credit squeeze, asset prices collapse, and government bails out the banks. It will be our GFC.

But, the most disturbing revelation in the chart is the way that the debt to income ratio is lockstep with oil prices. It's telling us that we haven't been able to absorb rising oil prices and have been forced to put the difference on the credit card or mortgage.

Prices can't go down because that's what oil now costs. It's leading to an economic meltdown, and starvation, because it impacts food production.

Note that when oil prices collapsed in 2020, it triggered a credit binge as if prices would stay low forever. A 400% increase in the price of energy in just a year can't be absorbed. It will play out sooner than you think.

There's only one way out. But, it's a highly unlikely deferral, and not a long term solution.

Most of the household and business debt which is held by the plutocrats and technocrats has to be written off. Rents have to be reduced. This would temporarily restore some purchasing power.

Most of the assets in the world are owned by plutocrats and technocrats. They don't need to do anything financially, and there's no evidence that they have hearts.

A 'debt jubilee' is a remote possibility. They used to happen in the olden days so people could eat.

  1. International Monetary Fund, Global price of WTI Crude [POILWTIUSDM], retrieved from FRED, Federal Reserve Bank of St. Louis;, November 26, 2021.

- 1 toast