Dmitry Orlov: Definancialisation, Deglobalisation, Relocalisation

1. Good morning. The title of this talk is a bit of a mouthful, but what I want to say can be summed up in simpler words: we all have to prepare for life without much money, where imported goods are scarce, and where people have to provide for their own needs, and those of their immediate neighbours. I will take as my point of departure the unfolding collapse of the global economy, and discuss what might come next. It started with the collapse of the financial markets last year, and is now resulting in unprecedented decreases in the volumes of international trade. These developments are also starting to affect the political stability of various countries around the world. A few governments have already collapsed, others may be on their way, and before too long we may find our maps redrawn in dramatic ways.

6. Key points

I know that I am running the risk of overstating these points and oversimplifying the situation, but sometimes it is helpful to ignore various complexities to move the discussion forward. I do believe that these points are all true, roughly speaking.

Global GDP is a function of oil consumption; as oil production goes down, so will global GDP. At some point, the inability to invest in oil production will drive it down far below what might be possible if depletion were the sole limiting factor. Efficiency, conservation, renewable sources of energy all might have some effect, but will not materially alter this relationship. Less oil means smaller global economy. No oil means a vanishingly small global economy not worthy of the name.We have had a chance to observe that economies crash whenever oil expenditure approaches 1/4 of global GDP. Attempts at economic recovery will cause oil price spikes that break through this ceiling. These spikes will be followed by further financial crashes and further drops in economic activity. After each crash, the maximum level of economic activity required to trigger the next crash will be lower.Financial assets are only valuable if they can be used to secure a sufficient quantity of oil to keep the economy running. They represent the ability to get work done, and since in an industrialised society the work is done by industrial machinery that runs on oil, less oil means less work. Financial assets that that are backed with industrial capacity require that industrial capacity to be maintained in working order. Once the maintenance requirements of the industrial infrastructure can no longer be met, it quickly decays and becomes worthless. To a large extent, the end of oil means the end of money…

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