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Debt: The Key Factor Connecting Energy and the Economy

Debt: The Key Factor Connecting Energy and the Economy thumbnail

There are many who believe that the use of energy is critical to the growth of the economy. In fact, I am among these people. The thing that is not as apparent is that growth in energy consumption is dependent on the growth of debt. Both energy and debt have characteristics that are close to “magic” with respect to the growth of the economy. Economic growth can only take place when growing debt (or a very close substitute, such as company stock) is available to enable the use of energy products.

The reason why debt is important is because energy products enable the creation of many kinds of capital goods, and these goods are often bought with debt. Commercial examples would include metal tools, factories, refineries, pipelines, electricity generation plants, electricity transmission lines, schools, hospitals, roads, gold coins, and commercial vehicles. Consumers also benefit because energy products allow the production of houses and apartments, automobiles, busses, and passenger trains. In a sense, the creation of these capital goods is one form of “energy profit” that is obtained from the consumption of energy.

The reason debt is needed is because while energy products can indeed produce a large “energy profit,” this energy profit is spread over many years in the future. In order to actually be able to obtain the benefit of this energy profit in a timeframe where the economy can use it, the financial system needs to bring forward some or all of the energy profit to an earlier timeframe. It is only when businesses can do this, that they have money to pay workers. This time shifting also allows businesses to earn a financial profit themselves. Governments indirectly benefit as well, because they can then tax the higher wages of workers and businesses, so that governmental services can be provided, including paved roads and good schools.

Debt and Other Promises

Clearly, if the economy were producing only items for current consumption–for example, if hunters and gatherers were only finding food to eat and sticks to burn, so that they could cook this food, then there would be no need for the time shifting function of debt. But there would likely still be a need for promises, such as, “If you will hunt for food, I will gather plant food and care for the children.” With the use of promises, it is possible to have division of labor and economies of scale. Promises allow a business to pay workers at the end of the month, instead of every day.

As an economy becomes more complex, its needs change. At first, central markets can be used to facilitate the exchange of goods. If one person brings more to the market than he takes home, a record of his credit balance can be kept on a clay tablet for use another day. This approach works as long as the credit can only be used at that particular market. If the credit balance is to be used elsewhere, or if the balance is to hold its value for a period of years, a different, more flexible approach is needed.

Over the years, economies have developed a wide range of debt and debt-like products. For the purpose of this discussion, I am including all of them as debt, broadly defined. One type is what we think of as “money.” Money is really a portable promise for a share of the future output of the economy. It can provide time shifting, if this money is held for a time before it is spent.

Another type of debt is a loan with a fixed term, such as a mortgage or car loan. Such a loan provides time shifting, allowing something to be paid for over a significant share of its life. Equity funding for a company is not really a loan, but it, too, allows time shifting. Those purchasing shares of stock do so with the expectation that they will be repaid in the future through price appreciation and dividends. It thus acts much like a loan, for the purpose of this discussion. There are many other types of promises regarding future funding that are closely related–for example, government loan guarantees, derivatives, ETFs, and government pension promises. All indirectly add to the willingness of people and businesses to spend money now–someone else has somehow made promises that remove uncertainty regarding future income flows or future payment obligations.

The Magic Things Debt Does

It is not immediately obvious how important debt is. In fact, neoclassical economists have tended to ignore the role of debt. I see several, almost magic, ways that debt helps the economy.

  1. Debt brings forward the date when an individual or company can afford to purchase capital goods. Without debt, the only way to afford such a purchase would be to save up the full price in advance. Using debt, a business can add a new machine to allow it to produce more goods before the business saves up money from its prior operations. A young person can afford to buy a house or car, long before he could save up funds for such a purchase. With the help of debt, the price of capital goods can be financed over much of their working life.
  2. Adding debt raises the prices of commodities. Commodities, such as lumber, iron, copper, and oil are what we use to make cars, houses, and factories. “Demand” for these commodities rises because more people and businesses can afford to buy capital goods that use these energy products. Often these capital goods also use energy products over their lifetime (for example, gasoline to operate a car), so there is a long-term impact on the demand for energy products, in addition to the demand associated with making the capital goods. Of course, with higher prices, it becomes profitable to extract oil and other energy resources from more marginal areas of production. More companies enter the field. As long as prices remain high, they are able to earn a profit.
  3. Adding debt stimulates the economy, almost like turning the heat up on a stove. When debt is added for any purpose–even starting a war–it starts a whole chain of purchases, each of which acts to stimulate the economy. If a young person takes out a loan to buy a car, the purchase of the car leads to the salesman having more money to buy goods for his family. The company selling the cars is able to make a bigger profit, which the business can reinvest or pay to shareholders as dividends. The purchase of the car leads to more demand for metals used to make the car, and thus tends to increase the number of mining jobs. Each new worker in turn is able to buy more goods and services, starting a beneficial cycle that gradually radiates out through the economy.
  4. Adding debt tends to lead to higher asset prices. Clearly, (from Item 2), adding debt can raise the price of commodities. Adding debt can also make it possible for more people to afford real estate and investments in the stock market. For example, Japan greatly ramped up its debt level between 1965 and 1989.
    Figure 1. Annual growth in non-financial debt (in Yen), separated into private and government debt, based on Bank of International Settlements data.

    Figure 1. Annual growth in non-financial debt (in Yen), separated into private and government debt, based on Bank of International Settlements data.

    During this time, a major price bubble occurred in land prices (Figure 2).

    Figure 2. Land Prices in Japan. Figure from Of Two Minds by Charles Hugh Smith.

    Figure 2. Land Prices in Japan. Figure from Of Two Minds by Charles Hugh Smith.

    There is a reason why this bubble could occur. Because of the stimulating effect that debt had on the economy, more people had the wealth to buy real estate, especially if this too was sold on credit. Once private debt levels stopped rising rapidly, price levels crashed both for land and stock prices. explains what happened: “By 1989, Japanese officials became increasingly concerned with the country’s growing asset bubbles and the Bank of Japan decided to tighten its monetary policy.” Doing so popped both the home and stock price bubbles.

  5. Adding debt adds to GDP. GDP is a measure of the goods and services produced during a period. Many of these goods and services are bought using debt, so it is not surprising that adding more debt tends to add more GDP. The amount of GDP added is less than the amount of debt added, even when inflation growth is considered as part of GDP.
    Figure 3. United States increase in debt over five year period, divided by increase in GDP (with inflation!) in that five year period. GDP from Bureau of Economic Analysis; debt is non-financial debt, from BIS compilation for all countries.

    Figure 3. United States increase in debt over five-year period, divided by increase in GDP (including inflation) in that five-year period. GDP from Bureau of Economic Analysis; debt is non-financial debt, from BIS compilation for all countries.

    The general tendency is toward the need for an increasing amount of debt per dollar of GDP added. This is especially the case when oil prices are high. In the US, the ratio of non-financial debt to GDP added was almost down to 1:1 for a time, back when oil prices were less than $20 per barrel (in today’s dollars).

  6. Adding debt tends to increase wealth disparity.  Adding debt tends to increasingly divide an economy into “haves” and “have-nots.” Many of the “haves” own the means of production, including an ever-increasing amount of capital goods, and thus can earn profits and dividends from these capital goods. Others are high-level officials in businesses and the government who earn high salaries. Interest payments also tend to transfer payments from the poor to the more wealthy. We might say that the common laborers are increasingly “frozen out” of the economy that otherwise is heating up. This shift started to take place in the United States about 1981.
    Figure 3. Chart comparing income gains by the top 10% to income gains by the bottom 90% by economist Emmanuel Saez. Based on an analysis IRS data, published in Forbes.

    Figure 4. Chart comparing income gains by the top 10% to income gains by the bottom 90% by economist Emmanuel Saez. Based on an analysis of IRS data, published in Forbes.

  7. Adding debt is something that governments can influence, either by lowering interest rates or by borrowing the money themselves.  Actions by governments to reduce interest rates can be effective, because they lower monthly payments that borrowers need to make to take out a loan of a given amount. Thus, they tend to encourage more borrowing. In Figure 5, below, note that the decrease in interest rates in 1981 corresponds precisely with the rise in debt to GDP ratios is Figure 3 and the shift in income patterns in Figure 4.
    Figure 4. Ten year treasury interest rates, based on St. Louis Fed data.

    Figure 5. Ten year treasury interest rates, based on St. Louis Fed data.

    Figure 6 later in this post shows that changes in Quantitative Easing (QE) (which affects interest rates and the level of the US dollar relative to other currencies) also correspond to sharp changes in oil prices. Changes in the level of the dollar also affect demand for oil. See a recent post related to this issue.

What Goes Wrong as More Debt Is Added?

It is clear from the discussion so far that quite a few things go wrong. These are a few additional items:

1. There are limits to government manipulation of debt levels.  First, interest rates eventually drop so low that they become negative in some countries. Negative interest rates tend to cause bank profitability to drop and lead to hoarding by those who planned to use savings for retirement.

Second, government borrowing doesn’t work as well at stimulating the economy as investments made by the private sector. A likely reason is that private sector investments are made when the borrower believes that the return on the investment will be high enough to pay back the debt with interest, and still make a profit. Government investments often do not meet this standard. Some reports indicate that Japan’s government has used borrowed money to fund bridges to nowhere and houses with no one home. China’s centrally directed economy seems to lead to similar over-borrowing problems. Chinese businesses also borrow to cover interest on prior loans.

2. Ratios of debt to GDP tend to rise, worrying government leaders. Debt is a way of accessing the benefits of Btus of energy, in advance of the time they are really available. As the amount of easy-to-extract oil depletes, the cost of oil extraction gradually rises. Unfortunately, the amount of “work” a barrel of oil can perform–for example, how far it can make a truck travel–doesn’t rise correspondingly. As a result, the higher price simply reflects increasing inefficiency of extraction, and thus the need to use a larger share of the economy’s output to extract oil. The amount of debt needed to keep GDP rising keeps growing, in part because oil is becoming higher priced to extract, and in part because goods that use oil in their production also tend to rise in cost. As a result, the ratio of debt to GDP tends to spiral upward.

3. Rising debt allows for a temporary false valuation of the benefit of energy products. The true value of oil and other energy products comes primarily from the Btus of energy they provide, such as how far a truck can be made to travel. Thus we would expect that the true value of energy products would remain relatively constant over time. If anything, the value of energy products will tend to rise by a small amount (say, 1% per year) as technology improvements lead to growing efficiency in their use.

What we think of as the magic hand of the economy determines a price for commodities at all times, based on “supply” and “demand.” This price clearly is not very close to the future energy profit that the energy products will actually provide, because it tends to vary widely over time. We don’t know what the true value of a barrel of oil to society is. If the true value is $100 per barrel (in today’s money), then back when oil prices were $10 or $20 per barrel (in today’s money), there would have been $80 to $90 (equal to $100 minus the actual price) of “energy profit” that could be pumped back into the economy as productivity gains for workers, interest on debt, and dividends on stock, tax revenue, and money for new investment. The economy could (and did) grow quickly. There was less need for added debt, because goods made with oil were cheap. Wages for workers could rise rapidly, as they did in the 1950 to 1968 period (Figure 4).

If prices approach the true value of oil (assumed to be $100 per barrel), the extra energy profit would pretty much disappear. The economy would increasingly become “hollowed out.”  Productivity gains that lead to wage gains would mostly disappear. Businesses would find it hard to earn adequate profits, and would cut back on dividends. Some companies might need to borrow money in order to pay dividends. World economic growth would slow.

Prices can even temporarily overshoot their true value to the economy, then drop sharply back. This happens because prices are set by demand, and demand depends on a combination of wage levels and debt levels. Oil prices can be high for a while, if borrowing is temporarily high, and then fall back as it becomes clear that profitable investments are not really available if oil is at such a high price level.

4. Wages of non-elite workers tend to drop too low. Workers play a very special role in the economy: they both (a) provide the labor for the economy and (b) act as consumers for the economy. If workers aren’t earning enough, there is a problem with many of them not being able to buy the goods and services the economy produces. This is especially the case for purchases such as homes and cars, which are often bought using debt. Indirectly, this lack of ability to afford the output of the system puts a downward pressure on the price of commodities, particularly energy commodities. Prices may fall below the cost of production, or may not rise high enough.

Figure 6. World oil supply and prices based on EIA data.

Figure 6. World oil supply and prices based on EIA data.

The reason that wages of the less educated, non-managerial workers tend to lag behind is related to the issue of diminishing returns. A workaround is a more “complex” society, with bigger businesses, bigger government, more capital goods, and more debt. In some cases, manufacturing is shifted to parts of the world with lower wages. Non-elite workers increasingly find themselves with too small a share of the output of the economy. Figure 7 shows some influences that tend to lead to too low wages for non-elite workers.

Figure 7. Illustration by author of why an economy that doesn't grow leads to falling wages for workers.

Figure 7. Illustration by author of why an economy that doesn’t grow leads to falling wages for workers. All amounts are guess-timates, to show a general principle.

When wages for a large share of workers drop too low, there is a problem with workers not having enough money to buy goods like cars and houses. The economy tends to contract. This is a different form of too low Energy Return on Energy Invested (EROEI) than most people think of. In my view, low return on human labor is the most important type of EROEI. Falling wages of a large share of workers can lead to economic collapse, because there are not enough buyers for the output of the system.

5. Eventually, debt defaults become a problem. As the world becomes more divided into “haves” and “have-nots,” falling ability to repay a debt becomes more of a problem. To some extent, this happens at the individual level, with auto loans, student debt, and mortgages. If commodity prices fall or stay too low, it happens to commodity producers, including oil producers. It also happens to countries, especially to those who are dependent on commodity exports.

The rise in the cost of oil extraction is another factor. As the cost of extraction begins to exceed the benefit of oil to the economy (assumed above to be $100 per barrel), the energy profit from oil is no longer sufficient to allow the economy to grow as in the past. Without economic growth, it becomes much harder to repay debt with interest.

Figure 7. In a period of economic decline (Scenario 2), the amount a debtor has left over after repaying debt plus interest is disproportionately large, leaving the debtor with inadequate funds for paying other expenses. In a period of economic growth (Scenario 1), the overall growth in incomes tends to compensate for the need to pay back the debt with interest.

Figure 8. In a period of economic decline (Scenario 2), the amount a debtor has left over after repaying debt plus interest is disproportionately large, leaving the debtor with inadequate funds for paying other expenses. In a period of economic growth (Scenario 1), the overall growth in incomes tends to compensate for the need to pay back the debt with interest.

6. At some point, we reach peak debt. The economy acts like a pump. As long as there are sufficient energy profits coming through the system (based on $100 per barrel minus the actual oil price, in our example), wages can rise and corporate profits can rise. Asset prices can rise, and energy prices can stay high. Once these energy profits start falling back, wages stagnate and business profits decline. Businesses cut back on borrowing, because they see fewer profitable opportunities for investment. Individuals cut back on borrowing, because with their lower wages, it becomes more difficult to buy a house or car. Governments try to fight declining demand for debt, but eventually reach limits of the economy’s tolerance for negative interest rates.

Once debt begins contracting, the contraction tends to bring down commodity prices. This is a huge problem for commodity producers, because they need prices that are high enough to cover their cost of production. Ultimately, falling debt, together with falling wages, and lack of energy profit have the potential to bring down the system.


The situation we are facing today is one in which growing debt has been holding up oil prices and other commodity prices for a long time. We are now reaching limits on this process, as evidenced by growing wealth disparity, low commodity prices, and the frantic actions of government leaders around the world regarding slow economic growth and the need for more stimulus. These issues are becoming major ones in the upcoming US political election.

Those studying oil issues from an EROEI perspective tend to miss the connection with debt, because EROEI analysis strips out timing differences. In my view, debt is essential to oil extraction, because it brings forward an estimate of the value of the oil and other energy products, so that businesses of all kinds can make use of the “energy profit” in paying their employees and in paying their taxes. Most people don’t think of the issue this way.

In this article, I suggest a different way of thinking about the limit we are reaching–oil prices can’t rise above some price limit without adversely affecting the economy. It is the savings below this limit that aid productivity growth and government funding. Perhaps researchers should be examining this price limit approach more carefully. This is not the same approach as EROEI analysis, but has the advantage of having fewer “boundary issues.”  It also offers a check for reasonableness of EROEI indications developed through conventional analysis. If an energy product needs a government subsidy, it is doubtful that that energy product is really providing an energy profit.

Our Finite World

20 Comments on "Debt: The Key Factor Connecting Energy and the Economy"

  1. onlooker on Fri, 6th May 2016 5:38 pm 

    Debt is fast losing its tenability as a beneficial aspect of the economy. This is a function of both debt overhang and accumulation but also a aspect of the manner is which debt suppresses or hides the real price of assets and other resources. In fact, debt is toxic now as it vastly undervalues the true worth of our environmental resources and their depletion. It simply is the worse of ways to prolong this unsustainable world economy. Of course the high up elites love it for it further enriches them.

  2. makati1 on Fri, 6th May 2016 6:55 pm 

    The world as a whole has hit Peak Debt. A few smaller countries can still grow a bit but those days are numbered also. The West, and the US in particular, is drowning in debt and going under for the third, and last, time. They have been living off of nonexistent, never to happen, future production. Borrowing from the future to party it up today and many yesterdays has destroyed capitalism and the BAU way of life. It will also make people like Gail obsolete. So be it.

    Pass the popcorn.

  3. kanon on Fri, 6th May 2016 7:07 pm 

    The author overlooks social control as a role of debt. How many people are on an endless treadmill of monthly payments and expenses slightly exceeding available cash? A few are above it all, as the debts of the masses are their assets. Debt is what keeps it all going. What the author refers to as “benefits” are key features of the control system. For example, the author says “at some point we reach peak debt.” Supposedly the payments are too great for the indebted to make. I think this statement is false, since there is no limit to debt creation and the only issue becomes distribution of debts — they have to be moved to debtors who can make the payments or the original debtors have to get more income. These are political control issues and not “economics.” IMHO, Tverberg is barking up the wrong tree

  4. makati1 on Fri, 6th May 2016 7:29 pm 

    kanon, how can ‘politic’ create good paying jobs? I’m just askin’.

  5. kanon on Fri, 6th May 2016 8:00 pm 

    In the US, there is a movement to raise the minimum wage. That is one example. Other examples are union politics forcing employers to pay more. There is expansion of bureaucracy and staff, for no obvious purpose. Who can forget the 2008 wall street bailout — a huge example of substituting a better debtor. The banks who are behind the system grudgingly (or gladly) adjust credit accordingly. I am not saying energy does not matter, since energy is consumed to produce anything. I am saying the Tverberg should be looking at the politics of debt rather than economic theory to explain her debt/energy relationship.

  6. onlooker on Fri, 6th May 2016 8:09 pm 

    Kanon, with all due respect, the time of these normal economic tweeks and modifications is over in the US. We are facing economic destruction. The only politics of debt going on is a transfer of wealth from below to the top. This system is completed corroded and is ready to collapse something peak oil dynamics will help accomplish. We are looking at a total halt to the normal way of doing things. A vast sea change if you will.

  7. Davy on Fri, 6th May 2016 8:22 pm 

    When we say peak debt it is misleading because it comes across as a quantity of something physical. Debt is a systematic arrangement with a zero sum. Debt issues revolve around distortions, imbalances, and disequilibrium. In that sense our modern debt regime is representative of all that is wrong with us. We have notional values for things that have little resemblance to reality.

    The key reason our debt issue are so dangerous is because it is exposing reality. A reality of limits and diminishing returns. It is exposing false narratives of future value. Normal price discovery is no longer possible with the debt distortions as we have currently. Without proper price discovery proper investment decisions are not made the result is malinvestment, overcapacity, and unneeded development. All these are debt in its destructive form. These are debts that cannot be paid back or will not produce an adequate return per the original agreement as the basis of that debt.

    Debt is an agreement and is measured by risk and confidence. Debt is becoming a lie just as society is living a lie. It is unclear how debt will adjust as it must. Will we have a debt jubilee or a hyperinflation loss of confidence event which is a mad max jubilee. Once a system gets so far beyond its equilibrium it can’t rebound and must break. We are heading for a break and debt will be a central factor of this break because debt and confidence are so central to our economic activities.

  8. kanon on Fri, 6th May 2016 8:23 pm 

    Onlooker, what is a “normal economic tweek?” In general, the system is a scramble to get “moar,” with the purveyors of credit/debt sitting at the top. Politics is the “normal tweak” that enables one group to gain advantages and increase their share. The reason the status quo is currently challenged is too many people cannot see how to get “moar” or even “enough.” All in quotes because they are relative terms which mean nothing without context. We are not facing economic destruction, but we are facing an upheaval in the status quo, which is perceived as TEOTWAWKI. I agree that the politics of debt presently favors the already wealthy. But I think you imply we are helpless without the banks’ money, but it is only our lack of understanding that makes up helpless. I have to add the caveat that global warming and environmental degradation are definitely reducing our prospects.

  9. Apneaman on Fri, 6th May 2016 8:27 pm 

    Sheldon Solomon on America (5:38)

  10. onlooker on Fri, 6th May 2016 8:33 pm 

    Raising the minimum wage and upheaval do not seem to fit within the same narrative. Upheaval is more indicative of destruction. The debt system is untenable and counterproductive for reasons Davy outlined above. The lie Davy refers to is our bargain made with every loan that is an IOU on the future and future growth. Well no future growth is forthcoming. The whole balance sheet is completely devoid of any reality. We are so so much poorer than the accounting would have us believe. Our prospects have and will always rest ultimately on the environments that makes the economy possible. so I am glad you recognized that at the end. The worse part of Debt is it has enabled us to continue to degrade and dismantle the true source of our wealth. That being Earth.

  11. kanon on Fri, 6th May 2016 8:50 pm 

    Davy makes very good points. I would add there is no necessary relationship between debt and future growth, except in whatever is monetized to cover interest. I think seeing debt as a political relationship gives us a better insight into just how we have gone astray. If debt is seen as a time adjustment — having tomorrow’s benefits today — then its quality is the same as the predictions of tomorrow’s benefits. Another thing is debt allows political relationships to persist long past their optimal time, since we are looking at the money instead of the facts. Leading to what Onlooker says: The whole balance sheet is completely devoid of any reality. But I again say we are not so much poor as we are confused.

  12. Northwest Resident on Sat, 7th May 2016 1:25 am 

    “The West, and the US in particular, is drowning in debt…”

    “It is hard to exaggerate the magnitude of the Chinese debt bubble. According to the Bank for International Settlements, debt to GDP has increased by around 100% since 2008, which compares with about 40% in the US leading up to the subprime meltdown, 60% in Japan prior to its collapse in 1997 and is even more than the credit booms of Greece, Portugal, Spain and Italy in the run up to the euro crisis. The only similar credit bubble in recent history was that in Thailand before the Asia crisis. And if an economy the size of China’s goes through what Thailand went through in 1997, the world will be a very ugly place indeed.”

    May 6 – Financial Times (Ben Bennett, Legal & General Investment Management)

    The whole world is in debt up to and over its eyeballs. More and more debt is the only thing that will keep things barely creaking along, and that only in brief spurts due to massive debt injections. There is a breaking point in our near term future, if we haven’t already passed it.

  13. theedrich on Sat, 7th May 2016 3:01 am 

    America is dead.  It lasted about two centuries, from 1776-1781 until 1976-1981.  From 1981 on, it could no longer sustain itself, and had to depend on corruption to maintain the illusion of grandeur.  With a declining White population, the decision was made to import lower races from elsewhere, since welfare-supported Negroes were no longer willing to work on the farm and (with an IQ of 85) are intellectually incapable of adapting to an increasingly automated society.  New forms of slavery, both domestically and abroad (“globalization”), were introduced as innovations to spur growth.  Still the decline continued.  After necrophiliac presidents seeking revivification of World War victories decided to regime-change not only Serbia but Allahland, it got worse.  In desperation, the masses elected an incompetent, anti-White Negro for “hope and change.”  Jonathan Gruber, the MIT prof who, confidently depending on what he called “American stupidity,” produced the lie called the “Affordable Care Act,” helped with a further desperate attempt to redistribute wealth to the non-elites.  This, of course, is not only impoverishing the White middle class, but attracting more millions of dark-skinned bloodsuckers and reducing the average intelligence level of the nation.

    Meanwhile the nation’s physical infrastructure, built for an earlier age, is passing into obsolescence.  Given the massive theft of the requisite funds by top politicians and their donor classes, there is no way that infrastructure is going to be updated on a countrywide level.  So-called “conservative values” (e.g., Negroes, Protomongoloids, etc. = Whites) belong to the eighteenth century.  Only the Bill of Rights’ establishment of freedom of speech still makes it possible to reveal the truth.  Europe and Canada, bought and paid for by multi-billionaire Jews, prefer dictatorship and enslavement of the masses.  Now that London, England, has a Mohammedan mayor, it will probably not be long before Sharia law is introduced in that city.  How long will it be before the rest of the West follows, as per Ghaddafi’s prediction?

    Meanwhile, the political overlords are destroying the capacity for any kind of economic restoration.  Because that would mean working against their own megalomaniac interests.  Their only interest is in feeding off of the corpse of America.  And keeping the masses entranced with subliminal propaganda about how glorious White genosuicide is.

  14. Apneaman on Sat, 7th May 2016 3:39 am 

    I love White genosuicide and anything else that makes douchy cry…….like a little bitch.

  15. Apneaman on Sat, 7th May 2016 3:48 am 

    Douchy, it’s not over yet. Been handed your hat and shown the door, but still plenty of fun to go. Whimper or bang?

    These empires tend to run in cycles. The US looks like it is going to come in right about average – 250 years.

    Sir John Glubb

    “I Learning from history

    ‘The only thing we learn from history,’ it
    has been said, ‘is that men never learn from
    history’, a sweeping generalisation perhaps,
    but one which the chaos in the world today
    goes far to confirm. What then can be the
    reason why, in a society which claims to
    probe every problem, the bases of history are
    still so completely unknown?”

    “Second, even within these short periods,
    the slant we give to our narrative is governed
    by our own vanity rather than by objectivity.
    If we are considering the history of our own
    country, we write at length of the periods
    when our ancestors were prosperous and
    victorious, but we pass quickly over their
    shortcomings or their defeats. Our people
    are represented as patriotic heroes, their
    enemies as grasping imperialists, or
    subversive rebels. In other words, our
    national histories are propaganda, not well balanced

  16. makati1 on Sat, 7th May 2016 6:04 am

    “If wage’s share was 50%, as it was in the early 1970s, its share would be $9 trillion. That’s $1.35 trillion more that would be flowing to wage earners.

    That works out to $13,500 per household for 100 million households”

    Could YOU use an extra %13,500.00 every year?

  17. Davy on Sat, 7th May 2016 6:27 am 

    Americans have most of America’s debt. The remainder that is foreign owned is related to currencies and global trade related to the reserve currency status of the US.

    “Who Owns the U.S. National Debt?”
    “The Biggest Owner Is You!”

    “Fewer people know that the Social Security Trust Fund, aka your retirement money, owns most of the national debt…..Intragovernmental Holdings, at $5.329 trillion, and Debt Held by the Public, at $13.751 trillion”

    “Debt Held by the Public
    Foreign – $6.175 trillion
    Federal Reserve – $2.461 trillion
    Mutual Funds – $1.056 trillion
    State and Local Government, including their pension funds – $803 billion
    Private Pension Funds – $403 billion
    Banks – $515 billion
    Insurance Companies – $293 billion
    U.S. Savings Bonds – $174 billion”

  18. Cloud9 on Sat, 7th May 2016 8:41 am 

    Debt is a simple process that enables economies to pull demand forward. It allows consumers to acquire goods and services they could not otherwise afford and it allows producers to grow production to meet the artificial demand. All buy now and pay later schemes have an event horizon. When that horizon is breached demand is destroyed and production collapses. The immediate result is idled factories and an unemployed work force. This is the normal boom bust cycle.
    When debt was tied to hard money the scope of these cycles were much smaller in scale. The auditors closest to the scheme could literally weigh the demands on the available physical wealth. At some point a powerful creditor pushed his demand for physical and the scheme collapsed. When fiat was introduced, the scale exponentially increased. Inflation was the indicator that told the public the Ponzi was about to unwind. A point is reached when the printing presses cannot keep up for the demand for ever increasing numbers of notes. The printers resort to exponentially increasing the numeric value of its notes. In less than 24 months, Zimbabwe went from printing one dollar bank notes to printing fifty trillion dollar bank notes. When a loaf of bread costs a wheel barrow full of bank notes the scheme collapsed.
    Now we have virtual debt. It is invisible. A trillion dollars is impossible for the mind to grasp. A Walmart parking lot filled with hundred dollar bills, stacked eight feet high is unfathomable. Because the debt is virtual, it can be expanded with a mouse click. The ability of central banks to expand debt is unlimited. Demand is exponential. What is finite is production. At some point demand outstrips supply and prices increase. The increase in prices drives increased demand. Commodities become expensive and the poor are priced out of the market.
    Price controls are instituted. Then production costs exceed selling prices and production stops. Price controls invariably result in empty store shelves. What most do not understand is that minimum wages are a form of price controls. As economies contract, the value of labor contracts. As the value of labor contracts, wages must contract or labor is priced out of the market. Businesses either automate or they shut down further decreasing the value of labor. Expensive labor is priced out of the market.
    Today the real money is in the financial sector and government. Neither of these sectors produces anything beyond more levels of complexity in an already too complex system. At some point, the political class and the financial sector will collapse the system.
    As japan reveals, the ability of central banks to conceal demand destruction by electronic transfers, can maintain the status quo for decades. The debt does not matter in that more debt can be conjured to pay for old debt. As long as these transfer payments are accepted as money the Ponzi can go on. At some point the economic system may devolve down to legions of super computers servicing each other’s debt. I suppose that process can continue until their demand for power collapses the grid.
    More likely, the exponential increase in the complexity of the financial system will collapse the system long before we run out of energy. Like with Lehman Brothers, there comes a point that the interdependent contractual arrangements clog the system. There is a margin call and it all comes crashing down.

  19. penury on Sat, 7th May 2016 11:12 am 

    Debt is the lifeblood of the world’s economy. Take away debt and the world and all of its wonders disappears. But, is all of it a chimera? Does fiat have anything behind it? The U.S. claims to owe most of their debt to themselves, Well,what does that mean? The debt does not exist, in effect the fiat was created by the Fed Reserve, it was not borrowed into existence it was created to force debt upon someone. Then the FR can just forgive the debt and it never existed. No harm, no Foul except that all of the transactions are fake and at the current time no knows what is real and what is fake. That is what will destroy the financial systems of the world.

  20. dave thompson on Sat, 7th May 2016 7:48 pm 

    Eat at home together we can SHUT IT DOWN!

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