At times, desalination, at very high cost, is needed to obtain sufficient fresh water for a growing population. In the last section, I discussed the cost of producing commodities of many kinds rising because of diminishing returns. Strangely enough, higher costs translate to higher prices only sometimes.
Spiking oil prices were experienced several times: to ; to ; to mid ; and to All of these high oil prices occurred toward the end of the red peaks on Figure 5.
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In fact, these high oil prices as well as other high commodity prices that tend to rise at the same time as oil prices are likely what brought growth in energy consumption down. The prices of goods and services made with these commodities became unaffordable for lower-wage workers, indirectly decreasing the growth rate in energy products consumed. The red peaks represented periods of very rapid growth, fed by growing supplies of very cheap energy: coal and hydroelectricity in the Electrification and Early Mechanization period, oil in the Postwar Boom, and coal in the China period.
The Postwar Boom also reflected the addition of many women to the labor force, increasing the ability of families to afford second cars and nicer homes. Rapidly growing energy consumption allowed per capita output of both food with meat protein given a higher count than carbohydrates and industrial products to grow rapidly during these peaks. The reason that output of these products could grow is because the laws of physics require energy consumption for heat, transportation, refrigeration and other processes required by industrialization and farming.
In these boom periods, higher energy costs were easy to pass on. In fact, if the world is reaching Limits to Growth, the situation is even worse than all of the labeled valleys on Figure 6. In such a case, energy consumption growth is likely to shrink so low that even the blue area population growth turns negative. Part of the problem is that the lower growth in per capita energy affects the kinds of jobs that are available.
With low energy consumption growth, many of the jobs that are available are service jobs that do not pay well. Wage disparity becomes an increasing problem. When wage disparity grows, the share of low wage workers rises. If businesses try to pass along their higher costs of production, they encounter market resistance because lower wage workers cannot afford the finished goods made with high cost energy products. For example, auto and iPhone sales in China decline.
The lack of Chinese demand tends to lead to a drop in demand for the many commodities used in manufacturing these goods, including both energy products and metals. Because there is very little storage capacity for commodities, a small decline in demand tends to lead to quite a large decline in prices. Strange as it may seem, the economy ends up with low oil prices, rather than high oil prices, being the problem.
Other commodity prices tend to be low as well. Figure 1 at the top of this post seems to give an indication of what is ahead after , but this forecast cannot be relied on. A major issue is that the limited model used at that time did not include the financial system or debt.
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The authors, in fact, have said that the model should not be expected to provide reliable indications regarding how the economy will behave after limits have started to have an impact on economic output. Stock prices will be erratic; interest rates will be erratic; currency relativities will tend to bounce around. The likelihood that derivatives will cause major problems for banks will rise because derivatives tend to assume more stability in values than now seems to be the case. Increasing problems with derivatives raises the risk of bank failure.
During the Great Recession of , the countries that seemed to be most affected were countries such as Greece, Spain, and Italy that depend on oil for a disproportionately large share of their total energy consumption. China and India, with energy mixes dominated by coal, were much less affected. Figure 7. Oil consumption as a percentage of total energy consumption, based on BP Statistical Review of World Energy data. Figure 8.
In the period, oil prices were rising faster than prices of other fossil fuels. This tended to make countries using a high share of oil in their energy mix less competitive in the world market. The low labor costs of China and India gave these countries another advantage. In and the years that follow, some countries may fare at least somewhat better than others. The United States, for now, seems to be faring better than many other parts of the world.
China is now the largest importer of oil, coal, and natural gas in the world. It is very vulnerable to tariffs and to lack of available supplies for import. Figure 9. China energy production by fuel plus its total energy consumption, based on BP Statistical Review of World Energy data. A second issue is that demographics are working against China; its working-age population already seems to be shrinking.
A third reason why China is vulnerable to economic difficulties is because of its growing debt level.
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Debt becomes difficult to repay with interest if the economy slows. Oil exporters such as Venezuela, Saudi Arabia, and Nigeria have become vulnerable to government overthrow or collapse because of low world oil prices since If the central government of one or more of these exporters disappears, it is possible that the pieces of the country will struggle along, producing a lower amount of oil, as Libya has done in recent years.
It is also possible that another larger country will attempt to take over the failing production of the country and secure the output for itself. Epidemics become increasingly likely, especially in countries with serious financial problems, such as Yemen, Syria, and Venezuela. Historically, much of the decrease in population in countries with collapsing economies has come from epidemics. Of course, epidemics can spread across national boundaries, exporting the problems elsewhere.
Resource wars become increasingly likely. These can be local wars, perhaps over the availability of water. They can also be large, international wars. Privately funded pension funds will increasingly be subject to default because of continued low interest rates. Some governments may choose to cut back the amounts they provide to pensioners because governments cannot collect adequate tax revenue for this purpose.
Some countries may purposely shut down parts of their governments, in an attempt to hold down government spending. A far worse and more permanent recession than that of the Great Recession seems likely because of the difficulty in repaying debt with interest in a shrinking economy. It is not clear when such a recession will start. It could start later in , or perhaps it may wait until As with the Great Recession, some countries will be affected more than others.
Eventually, because of the interconnected nature of financial systems, all countries are likely to be drawn in. It is not entirely clear exactly what is ahead if we are reaching Limits to Growth. Perhaps that is for the best.
While it is possible that this is an end point for the human race, this is not certain, by any means. There have been many amazing coincidences over the past 4 billion years that have allowed life to continue to evolve on this planet. More of these coincidences may be ahead. We also know that humans lived through past ice ages. They likely can live through other kinds of adversity, including worldwide economic collapse.
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The base model would give a slightly different timing of the downturn, a few years earlier. View at Medium.
Apparently those damn Martians nuked their own planet and had to come here. Lol… that means Venus is next. According to Nissan Canada, it sold electric vehicles in Ontario in August. By November, those sales dropped to The company literally sold 10 of its Leafs. Where are the hypocrite Greenies? Perhaps those Greenies know better…Rodster…. Yes, I agree with Gail, Not much we can do about it with 7. My opinion is that this reflects not only the world economy situation, but, also, the declining availability of the suitable workforce in Europe: the Germanys industry simply can not accept more orders.
Also, the high cost of electricity in Germany is affecting the ability of Germany to attract suitable workers, if not affecting the price of electricity for industrial production. High cost of electricity are disproportionately paid for by workers, rather than industry.
Furthermore, exports to UK and China are likely down. Adding pollution controls hurts auto pricing, apart from other disruptions, I would expect. What has happened through recent decades is that increasingly large part of the Western Europe and most of the CEE are basically integrated part of the overall German economy, be it suppliers or branches.. In the second case, moving 1 unit of snow unleashes an avalanche. In a panic, former Fed chair Alan Greenspan pushed interest rates to historic lows to inflate another bubble, thus insuring the next bubble would manifest even greater non-linear devastation.
Ten years after the Global Financial Meltdown, analysts are still trying to understand what happened. This is the nature of non-linear dynamics: everything is tightly tied to everything else. The vast imbalances created by 10 years of unceasing goosing will unleash a non-linear avalanche of reversions to the mean and rapid unwinding of extremes. Consider the impact on hedges, a necessary function of the financial system.
With shorting volatility being the one-size-fits-all hedge, the signaling value of volatility has been distorted. Why Our Status Quo Fai Financial assets have been goosed to record highs in the everything bubble. Buy the dip has worked in stocks, bonds and real estate--what's not to like? Beneath the surface, the frantic goosing has planted seeds of financial crisis which have sprouted and are about to blossom with devastating effect.
There are two related systems-level concepts which illuminate the coming crisis: the S-Curve and non-linear effects. The S-Curve illustrated below is visible in both natural and human systems. The linear stage of maturity is followed by a decline phase that's non-linear. Linear means 1 unit of input yields 1 unit of output. Non-linear means 1 unit of input yields unit of output.
In the first case, moving 1 unit of snow clears a modest path. In the second case, moving 1 unit of snow unleashes an avalanche. In a panic, former Fed chair Alan Greenspan pushed interest rates to historic lows to inflate another bubble, thus insuring the next bubble would manifest even greater non-linear devastation.