[jato]

Assuming after Peak Oil fossil fuels deplete faster than we can replace them with alternate sources of energy. Assume the total energy production around the world is in decline.

I would assume a total net decline in energy production will prohibit economies from continuing to grow. Am I right?

How can our economy, which is dependant on growth, be allowed to “contract” year after year? I understand there might be small periods of growth, but with declining energy, it would have to contract most of the time. Right?

Can any “optimistic types” explain how our economic system can survive Peak Oil/Energy without a “silver bullet” or miracle technology to save us?

As I have said on other posts, I am not the sharpest economic tool in the shed. I just can’t see how our economic system will survive. Most of you just gloss right over the economic implications of Peak Oil/Energy. I see is as being one of the biggest and most immediate problems.

{This thread is 9 months old. Please skip ahead to page 7 to pick up the discussion}

[nero]

The economy can continue at least for a time with decreasing energy consumption. Even without increases in prices, improvements in technology have pretty consistently meant that the economy expands faster than the rate of increase in energy use. If the price of oil increases the economic insentive to apply the technological efficiencies will increase. This investment in improved efficiency however will drag on people's standard of living. Eg. The money spent improving energy efficiency won't be spent making the latest and greatest gizmo. The extra money spent buying the new energy efficient fridge means you won't get the one with the automatic mug froster.

Perversely the headline number nominal GDP can grow while people's standard of living drops. This is clearly the case if the rate of inflation is greater than the rate GDP. The improvements in efficiency will be a hidden cause of inflation. Say all new small cars were mandated to be hybrids. with current technology hybrids cost more so hey presto we have inflation in the price of cars.

[Jack]

Yes, I think economies can grow during a period of energy decline. Please understand that "can" and "will" are very different things.

Suppose that gasoline moves up smartly to $7.00 per gallon over the next 5 years. People will want more fuel efficient cars, right? So they'll get rid of the old gas guzzlers and buy new cars. They'll cut back on heating and cooling, but they'll purchase insulation and double glazed windows.

If electricity gets iffy, they'll buy solar panels, and solar water heating equipment.

Notice how I keep using the word "buy"? That means more GDP, it means people producing the "stuff" that these people will buy.

We might even see thriving growth in "energy conservation consultants" amongst recovering SUV salesmen!

Now keeping economic growth positive in the face of a declining population would be a great deal more challenging...

[Jack]

$this->bbcode_second_pass_quote('jato', 'A')ssume the total energy production around the world is in decline.

[Falconoffury]

Fossil fuel will be in permanent decline, but not energy. As far as I'm concerned, the global economy is more certain to be doomed than a die-off is certain. With expensive fuel, we have less transportation for goods to move over long distances. Everything will have to become more localized.

[MonteQuest]

$this->bbcode_second_pass_quote('jato', '
')
I would assume a total net decline in energy production will prohibit economies from continuing to grow. Am I right?

How can our economy, which is dependant on growth, be allowed to “contract” year after year? I understand there might be small periods of growth, but with declining energy, it would have to contract most of the time. Right?

[MonteQuest]

$this->bbcode_second_pass_quote('Jack', ' ')
Suppose that gasoline moves up smartly to $7.00 per gallon over the next 5 years. People will want more fuel efficient cars, right? So they'll get rid of the old gas guzzlers and buy new cars. They'll cut back on heating and cooling, but they'll purchase insulation and double glazed windows.

[gogota]

I personally don't believe the economy will survive 10 years post peak. The economy has started to go wrong since August 2004. The end of oil era is the end of industrial era

[nero]

MonteQuest

I've read something very similar on the site before. The federal government does "create" it's own money and then spends it like real money. When the government sells a bond to the central bank it knows the central bank will roll it over from then to eternity because if the central bank redeems the bond all it is doing is reducing the money supply ,which is a BAD thing. Since the government knows that it will never have to repay the loan it has essentially recieved free money. Or in other words it created money by selling a bond to the central bank. You seem to think that the central bank makes the money by loaning it out to people but in reality the only entity that is sure the central bank will perpetually rolling over their debt is the federal government. That is because ultimately the central bank is a creature of the federal government. The federal government gives the central bank its mandate to make money and in return the government gets the special priveledge of knowing that it will never have to repay the bonds held by the central bank.

That is my understanding of the system. Yes it is debt based, in that the federal accounts are done under regular accounting rules. The independance of the central bank is a key feature of a stable monetary system. When the central government has too tight a control over the central bank people start to worry that the federal government will start balancing its books by forcing the central bank to loan it more money than is wise for the economy as a whole. Your idea of having the federal government create money directly is in effect the equivalent of the president being able to call up the central bank governors and ordering them to buy X number of treasury bills. People would worry that the politicians would abuse the power and be tempted to throw any attempt at matching expenditure to taxes. This increase in the money supply would lead to massive inflation and loss in confidence in the money supply. Hence governments have tried in recent decades to shakle their own ability to "print" money by giving the power to an arms length organization who has a clear mandate to control the supply of money.

[MonteQuest]

$this->bbcode_second_pass_quote('nero', 'M')onteQuest

I've read something very similar on the site before. The federal government does "create" it's own money and then spends it like real money. When the government sells a bond to the central bank it knows the central bank will roll it over from then to eternity because if the central bank redeems the bond all it is doing is reducing the money supply ,which is a BAD thing. Since the government knows that it will never have to repay the loan it has essentially recieved free money. Or in other words it created money by selling a bond to the central bank. You seem to think that the central bank makes the money by loaning it out to people but in reality the only entity that is sure the central bank will perpetually rolling over their debt is the federal government. That is because ultimately the central bank is a creature of the federal government. The federal government gives the central bank its mandate to make money and in return the government gets the special priveledge of knowing that it will never have to repay the bonds held by the central bank.

That is my understanding of the system. Yes it is debt based, in that the federal accounts are done under regular accounting rules. The independance of the central bank is a key feature of a stable monetary system. When the central government has too tight a control over the central bank people start to worry that the federal government will start balancing its books by forcing the central bank to loan it more money than is wise for the economy as a whole. Your idea of having the federal government create money directly is in effect the equivalent of the president being able to call up the central bank governors and ordering them to buy X number of treasury bills. People would worry that the politicians would abuse the power and be tempted to throw any attempt at matching expenditure to taxes. This increase in the money supply would lead to massive inflation and loss in confidence in the money supply. Hence governments have tried in recent decades to shakle their own ability to "print" money by giving the power to an arms length organization who has a clear mandate to control the supply of money.

[Jack]

$this->bbcode_second_pass_quote('MonteQuest', '')$this->bbcode_second_pass_quote('Jack', ' ')
Suppose that gasoline moves up smartly to $7.00 per gallon over the next 5 years. People will want more fuel efficient cars, right? So they'll get rid of the old gas guzzlers and buy new cars. They'll cut back on heating and cooling, but they'll purchase insulation and double glazed windows.

[MonteQuest]

$this->bbcode_second_pass_quote('', 'A')hh, but it was an excellent rant!

[JohnDenver]

$this->bbcode_second_pass_quote('jato', ' ')Can any “optimistic types” explain how our economic system can survive Peak Oil/Energy without a “silver bullet” or miracle technology to save us?

[JohnDenver]

$this->bbcode_second_pass_quote('nero', ' ')This investment in improved efficiency however will drag on people's standard of living. Eg. The money spent improving energy efficiency won't be spent making the latest and greatest gizmo. The extra money spent buying the new energy efficient fridge means you won't get the one with the automatic mug froster.

[nero]

MonteQuest.

I don't think I'm missing anything, but I do think I interpret it less sinisterly.

This is how I see it:

Actions:
1. The gov. creates a T bill and sells it to a bank for $1000
2. the fed receives the T bill to hold in trust as a security from the bank. in response the fed gives the bank $1000
3. The feds spends a $1000 dollars in paper clips
4. The paper clip manufacturer deposits the money into the bank

Net Results:
1. The bank's deposits increase by $1000
2. The fed has printed $1000 and disbursed it into the banking system and now holds a T bill
3. The government has spent $1000 on goods and servces and has an unredeamable debt held by the fed of $1000.
4. The paper clip manufacturer has increased his bank account by $1000


It seems to me the government has found some new money here that it knows will not be missed. The two hands of government have done an elaborate charade whose net effect is to pass into the hands of the government some new money to spend into the economy. It is when the government spends this money that the money supply actually increases.

The Fed is very much a creature of the government. It was created by an act of congress, the president appoints the govenors, it's mandate is specified by the act and any "profit" it has is returned to the Treasury. I put the profit in quotation marks since with the ultimate power to create money the Fed accounting must require some wicked loops of logic.

[Whitecrab]

Monte, This kind of thing make my head hurt, in particular these parts of that site you linked:

$this->bbcode_second_pass_quote('', '
')The operation may be best understood if we use the example of checks. The Fed writes a check to a securities dealer. The dealer deposits the check at his commercial bank. The commercial bank credits the dealer’s account and returns the check to the Fed. The Fed credits the bank’s reserve account. New money has been created and can be circulated by the dealer writing checks to pay his bills.

The money created by this process has no corporeal existence other than numbers in a bank’s ledger. Keep in mind that no notes have been printed and no coins have been minted. This is the secret of understanding money mechanics which I call ledger entry legerdemain or ledger entry shell game. Also, keep in mind that if you or I did such a thing, we would be called federal although not Federal Reserve Bank officer. We would be called federal prisoner.

The deposit made by the securities dealer creates an addition to the commercial bank’s reserve account. Commercial banks may lend a portion of the value of the reserve account. The portion is determined by the specified fractional reserve requirement. If the specified fraction is 10%, the bank may lend 90% of its reserve account value.

[MonteQuest]

This is how I see it:

Actions:
1. The gov. creates a Treasury Note and gives it the the FED
2. The FED receives the TN where it becomes a security assset.
3. The Fed issues a check to the US Govt
4. The govt deposits the check into a FED Reserve Bank where it can write checks to pay the govt's bills, Social Secuity, etc.
5. These govt checks are deposited into many Fed Reserve banks where they become reserves.
6. A bank can loan out this money while only holding 10% in reserve, thus for every $100 dollars created, the Fed can loan $90 dollars to other banks at interest, who in turn can do the same. So, when you borrow $100,000 to buy a home, actually only $10,000 of that loan actually exists in the bank, the other $90,000 is created out of “thin air.”

This is how the Federal Reserve "creates" the money supply. Individuals can buy securities, and so can central banks, but the Fed increases the money supply primarliy through the system I just explained. If you disagree, I invite you to go to your search engine and type in "How money is created."

[MonteQuest]

$this->bbcode_second_pass_quote('Whitecrab', '
')Could you try to explain those passages in another way??

[jato]

$this->bbcode_second_pass_quote('', 'b')ut I haven't seen any research to suggest we are facing peak energy soon. Have you?

[JohnDenver]

$this->bbcode_second_pass_quote('jato', '')$this->bbcode_second_pass_quote('', 'b')ut I haven't seen any research to suggest we are facing peak energy soon. Have you?