All economic activity requires energy to perform useful work. Without an increasing flow of net energy to society the economy starts to contract. The extraction of finite fossil resources cannot sustain increased growth as depletion and diminishing returns eventually leads to bankruptcy and falling supply.

Monetization based on the assumption that the resource base is endless, which flies in the face of fundamental physics, can only lead to financial collapse. Intermediate stages that we have witnessed since 2008 is the erosion of the middle class, increased wealth inequality and increased numbers of poor people in society. Borrowing of work and resources from the future, through debt fuelled credit expansion, has become completely insane. To the extent that we are eroding the life-support systems that make up the basis for our own long-term survival. It has indebted future generations in ways they can never repay and is a grave intergenerational injustice.

Thermodynamic limitations of the physical world don’t even enter the grammar of most economists or central bankers who are wilfully inept to give advice on anything but how to ruin entire nations. The lack of a systems perspective has made the public unaware of the real dangers of a out of control financial system. Economic growth based on credit fuelled debt, which has exploded since the early 1980s, in form of unlimited issuance of government bonds, credit cards without security, sub-prime mortgages or quantitative easing are all just sophisticated ways of sending the bill to the future.

Its obvious that it’s not possible to cure problems that arise from too much of something (debt) by doing more of it (piling on more debt). That’s just insanity. If credit costs are larger than income minus other expenses then either the income must increase to balance losses or bankruptcy is the only way out. By now, we know that the pile of debt accumulated is unpayable and so a debt restructuring or debt jubilee is the only way forward. The young generation, especially, need to have their debts forgiven or we will have riots in the streets, political turmoil and an increase in crime rates.

In the fall of 2008 the financial system in Iceland collapsed leading to a closure of the three main banks and a 50% fall in the value of the Icelandic króna. When the banks collapsed they left huge obligations to lenders and customers without coverage. The Icelandic government issued a guarantee for all Icelandic accounts, releasing comparative demands from a large volume of overseas accounts (a net deficit of €3.2 billion after all assets were sold). The government had no way of covering this demand, causing the collapse of the Central Bank of Iceland and the currency. Iceland went bankrupt and loans in foreign currency became unpayable for state, businesses and private persons. The Icelandic people voted no in referendums to repay foreign debts, elected different people in office and jailed bankers for corruption. They basically had to restart the system. However, the real reason that Iceland has not suffered like Greece, for example, is because they were able to keep increasing their oil consumption (from imports) while relying heavily on domestic hydropower and geothermal for electricity production. This is not the case for the PIIGS countries which all were heavily reliant on oil imports that they could no longer afford.

Many of the driving factors behind the Icelandic banking crisis and the GFC arose from a fundamental systems crisis in our present world. The economic model based on eternal financial and material growth has started to meet limits, where the human civilisation has outgrown the capacities of the planet to support it. Borrowing from the future to cover up this fundamental problem is a short sighted strategy that will come to an end, sooner rather than later. And it also means that the collapse curve will be even steeper as we have depleted more resources without making a transition to renewable energy resources.

Against such limitations, all talk or negotiations are futile, and pretending the dilemma does not exist has only lead to bigger risks with ever more debt – stealing from future generations. Countries may be able to handle a purely financial crisis, like Iceland, but they won’t be able to handle a energy-induced financial crisis, like in the case of Greece. It doesn’t matter what financial reforms they make as long as they can’t afford the energy needed to operate society they will continue to contract. So while debt forgiveness is necessary it’s not sufficient in solving Greece’s problems

17 Comments on "Lessons from the Icelandic vs Greek collapse"

paulo1 on Wed, 11th Nov 2015 5:34 pm 



Call me old fashioned, but I believe in a system of personal responsibility and accountability. This is where I am coming from. I believe this applies to countries, as well.

I have never made big money. My income has always been modest compared to many around me. What I have done is made sure that I did not buy anything on a whim, or on time beyond a modest mortgage.

If some idiot goes out in today’s world and decides to obtain a liberal arts degree with absolutely no chance of achieving employment for said degree, why the f#!k should I help pay off his/her stupid decision? Let’s name a few bonehead choices: Political Science, Anthropology, Paleontology. Interesting? You Bet! Worth studying? Absolutely. Should I help pay for it? Not likely. Young people planning to get mad and riot over having to pay for their contracted, (CONTRACTED) student debt? Fill your boots. I hear water cannons and rubber bullets hurt, big time.

To quote from the last paragraph: “Borrowing from the future to cover up this fundamental problem is a short sighted strategy that will come to an end, sooner rather than later.”

Countries should live within their means as well. Stop the free lunch tax giveaways for corporations. On welfare and able bodied? Spend some time helping out in your community that is picking up the tab. Too humiliating? Then find a job, any job. All work is noble and worthy of respect. I have dug ditches and didn’t much like it, and that is why I worked to obtain the necessary skills so I could climb out of the ditch. Simple enough concept. Wealthy citizens avoiding taxes? (Greece) Then throw them in jail and confiscate their property. If they run then extradite them. Maybe they will have to be hunted down like the criminals they are.

I am 60 years old, and my wife is 56. We worked hard through many recessions and tough times, always putting aside some money for the future, building up modest savings. Now, when we are retired, our savings makes no return. Now, because we have saved for the future, we are penalized with ZIRP. And now, people are asking me to finance those who fail to plan, and make stupid economic choices. The example Iceland set was having the jam to throw banksters in jail and telling corrupt banking institutions to “go pound sand”. They gave up their bid to enter the EU. Greece is being shafted, no doubt about it. But their corrupt politicians have built up a system that failed their citizens a long time ago. The citizens liked what they had and were complicit in making no changes until it was too late. Plus, they still want to stay in the EU. They want it all, but they just don’t think they should have to pay for it.

The music is slowing down. People need to ensure they are not the one left standing when it stops. Are there eventual consequences? Look at Venezuala. They don’t even have enough food or toilet paper. It can happen anywhere, including the US and my country, Canada. (“Did we really need those granite countertops, Julie”?)

ghung on Wed, 11th Nov 2015 6:13 pm 



Paulo; “(“Did we really need those granite countertops, Julie”?)”

Funny that, Paulo. Granite countertops was my call (no arguments from the wife). I prefer to invest in things that will outlast me, so I dug deep. Will literally last forever, and we’re not the redecorating type. Great for baking and canning, and easy to keep clean and sterile.

Re: the rest of your post; we’re on the same page, as usual. The planet is supporting a lot of dead weight, a luxury we won’t be able to support much longer. Ultimately, Darwinism will rule, and a lot of things that were enabled by industrial extravagance won’t be in demand. Anyone who wants to specialise had better be doing something important in a survival/resilience sense. I’ll help a kid to learn carpentry or welding. Art appreciation? Not so much.

Outcast_Searcher on Wed, 11th Nov 2015 6:50 pm 



The first paragraph of the article says: “All economic activity requires energy to perform useful work. Without an increasing flow of net energy to society the economy starts to contract. The extraction of finite fossil resources cannot sustain increased growth as depletion and diminishing returns eventually leads to bankruptcy and falling supply.”

If there were no such thing as efficiency improvements AND there were no such thing as conservation, then this might hold true. However, efficiency improvements are ongoing and so are conservation efforts. In addition, green energy will play a (gradually) increasing role in providing energy in coming decades.

So, nice try, but the central premise of the article is incorrect.

Outcast_Searcher on Wed, 11th Nov 2015 6:52 pm 



Nice job Paulo. I was thinking of posting the following:

Two words: “Personal Responsibility”. I couldn’t agree with your post more.

shortonoil on Wed, 11th Nov 2015 7:12 pm 



“If there were no such thing as efficiency improvements AND there were no such thing as conservation, then this might hold true. However, efficiency improvements are ongoing and so are conservation efforts.”

The world’s petroleum system is now operating at a 20.5% efficiency rating, out of a theoretical 27%. There is not much room for improvement. The cost of attaining the additional 6.999% would be greater than all investments that have ever been made to date.

Iceland uses more than twice as much energy per capita than does the US. She is a very rich nation. She could afford to tell the thieves in Brussels to take a hike. Greece – not so much!

makati1 on Wed, 11th Nov 2015 9:51 pm 



paulo1, I totally agree. I had one year of paid for college (1962-63) after high school. I worked at dirty, sweaty jobs for about 15 years before I got into the office as a self taught draftsman, then designer, then estimator, then project manager of million dollar projects. (No college degree) No help along the way. Lots of unemployed breaks which is typical in the construction industry. I always picked up my tools and worked during those breaks as self employed handyman for cash.

When I read that more than 50% of Americans get some form of direct dole and the rest enjoy a lot of indirect subsidies, I shook my head and walked away before it erupted into chaos and violence. Those days are fast approaching.

HARM on Wed, 11th Nov 2015 11:01 pm 



I probably run the risk of inviting a flame war, but after reading all the old codgers here droning on about “personal responsibility” and the dangers of a liberal arts degree*, I must register my dissent:

1. It’s 2015, not 1965, and you are not going to get a job –pretty much any job, even menial work– without at least some college. It’s called “credential inflation” –Google it. Even WalMart prefers to hire college graduates these days. Today’s Bachelors = yesterday’s HS diploma. Most professional jobs demand a Masters or PhD, even when the job really does not merit one. The fact that it requires enormous debt to attend most colleges or universities today has a lot to do with our hyper-financialized debt-based economy, but it’s not the fault of young people.

2. Automation today is making even “professional” jobs obsolete/irrelevant at an alarming rate –not just blue collar jobs. You can argue about the TYPE of degree or professional certification young people should be getting (much like the Republican Presidential candidates on TV), but it still doesn’t conjure millions of nonexistent professional jobs into existence. Yes, we could encourage all young people to get degrees in chemistry, engineering and IT vs. philosophy, English and political science, but if there are not enough relevant jobs to go around when they graduate, most will just become very overqualified barristas –like today’s Liberal Arts graduates.

3. In 1965, one union working man’s average salary could easily afford a nice house, health insurance for the whole family, and college tuition. Housing, healthcare and college costs have FAR outstripped wage-earner class salaries –by 200% or more over the last 50 years, and that’s taking “inflation” into account. It’s not that young people have suddenly gotten lazy and entitled –they just cannot afford any of those things without taking on enormous debts. You cannot demand 1965-era (inflation adjusted) prices for college and then wait tables to pay for it. It simply cannot be done, not even working triple shifts.

4. Houses today along the coasts can average 10-12x annual household incomes. Back in 1965, they averaged 3-4X HH incomes, even in expensive places like California. And back in 1965, ZIRP, private equity funds, REITs, Mortgage-backed Securities and Chinese all-cash buyers did not exist. Are young people today just lazy and stupid, or basically up against impossible odds and a totally financialized economy that puts them at a permanent disadvantage?

5. “Self sufficiency” is largely a myth and always has been. Yes, you could easily repair a car 50 years ago –back when car engines were not packed with microprocessors and require specialized training to repair. But even back then, every town had auto mechanics, doctors, engineers, specialized tradesmen, etc. Society was a lot less complex, the economy was less specialized, but you could still not know everything and make everything you needed all by yourself. How many people were self-sufficient farmers in 1965? Master carpenters? It’s good to have basic survival skills and knowing how to repair things that can be repaired by hand, but it’s not like 1965 America was populated exclusively by genius survivalists who never needed help with anything.

(*full disclosure: I am in my late 40s, have a BA in English and Masters in Marketing, which I paid off ~15 years ago.)

makati1 on Wed, 11th Nov 2015 11:32 pm 



So, HARM, you have two worthless degrees that will be of zero value when the SHTF. Do you have any useful skills? Anything that can provide for you and yours when there is no need for English teachers or …LOL… “Marketing”?

You obviously don’t want to hear about the real ‘land of the free’ that existed in us ‘old codger’s’ youth, because it is gone and you will never experience it. Too bad. About like a eunuch putting down sex because he can never experience it, while those around him have great memories of past orgies.

I suggest you use some English and read about the Middle ages life and get a glimpse of what is coming, if we are lucky and avoid a nuke exchange. I don’t remember too many openings for language teachers or even schools. And marketing was done by barter at the local crossroads village.

Davy on Thu, 12th Nov 2015 6:39 am 



Makster, I should have known you are a college drop out. Couldn’t handle the rigors of college studies. Maybe you just got lazy? Where you on drugs or drunk? Finally, maybe all of the above plus you knocked the wife up. Some of you may say “Davy that is not fair to criticize Mak that way”, well folks that is what he does to the rest of us and the rest of the world for that matter. Makster is a pissed off, resentful, hateful old man stuck in a small apartment in Manila in the middle of 20MIL people preaching resilience and sustainability. Something is wrong with that. He talks about a faux farm he dreams about much like his fantasy in his cheap sci fi novel he wrote. He comes on the board to talk himself up and feel better about is lonely and failed existence.

When we talk about subsidies, indirect payments, welfare, and safety net you people need to keep this is perspective. An economy generates a certain amount of production. This is finite economic activity. People work and live in a relationship of community and economy. How that production is divvied up is irrelevant at a certain level.

Who cares if the American system has people with food stamp cards. Everyone is getting handouts in some way shape or form. The rich get the biggest handouts and perks. There is not one single person in this country that is not getting handouts. The American political and economic system has morphed into a particular system of work and benefits today. We have many people that are on disability or government support but many of these people work odd jobs. Most people do something. Many do home economics. How do I know this, I live here stupid anti-Americans that don’t The rich are getting free money, have pathways to success through connections. What is the fucking difference? Aint!

I get so sick and tired of people like the Makster saying how fucking hard he worked and how fucking hard his life was. BOOO HHOOOO Makster. You are a chump that is just pissed off and resentful your life in the US was such a failure. The US is doing just fine in its mess in relation to the rest of the world that is a mess. You fucking anti-Americans that constantly bash the US at every fucking level are idiots. The US is doing little better or worse than the rest of the world. Not to mention the US is a country of 300MIL that spans a continent. It is very hard to generalize about such a large and diverse country. Yet, that is what the anti-Americans like to do. Fuck that

makati1 on Thu, 12th Nov 2015 7:23 am 



Davy, college is NOT a necessity for a good life. Especially now when it cost’ in the six figures and you get a job at McDonald’s flipping burgers, IF you are lucky enough to be employed. AND indebted servitude to the banks that ruins your life.

As for your allegations, I lived at home as a day student at Dickinson College in Carlisle, Pa. No drinking or partying like the current college trash. I assume you were speaking from experience? Drugs? Yes, I used aspirin occasionally for headaches. I didn’t even know any other ‘drugs’ existed. And, you had to be 21 to get alcohol in PA. Still do.

Were I to describe you in the hateful manner you like to describe me, I could ask you if you and the sheep have ‘special’ relations? After all, you live in hillbilly country where such things are common, I hear. LOL.

Accept that you are stuck in the worse country on earth today and adjust. If you plan to live to my age, good luck.

My life was and is a great success, because, I never made money my god like you and your 1% family. I worked for my living, unlike you. I supported my family and they never went without necessities and a few extras. I enjoyed my life and still do.

Better get used to being bashed by the rest of the world. They are tired of the Imperial, arrogant, whiney attitude of Americans. The tide is turning and about time.

Davy on Thu, 12th Nov 2015 7:32 am 



OOOH, getting under Makster skin!!! You chump, expect more. You can’t take it pussy? If you want to slug it out lets have at it you silly old man. You don’t really think you can constantly throw shit on people and sooner or later not get your hands dirty with shit. I know everything about you Makster as far as what you write on this board. It is all coming back in your face as needed. That is my promise to you. The alternative is to accept a code of conduct and a medium of décor that adults should show each other. Demonstrate respect for others on this board and it will be given to you. You have routinely dismissed this request so expect more shit in your face silly old man

simonr on Thu, 12th Nov 2015 8:52 am 



Paulo

Whilst you have a point, the avoidance and evasion of tax is in direct proportion to the rate demanded.

Where I live now, people used to pay and have a sense that we were all in it together, as more money was needed by the Gov. rates were hiked, now it is about 55% for anyone running there own business (regardless of profit or turnover), and people (ordinary people) are advising on ways to hide money.
The next step could be for the gov. to increase the demands, people need to live they will simply get more imaginative, eventually you end up like greece.

briefly put any fiscal demands above about 25% are counter productive and corrosive to the little respect people have for the state, if you cannot fund the state on 25% … cut back.

sorry for the rant

Simon

makati1 on Thu, 12th Nov 2015 6:55 pm 



Davy, I enjoy putting down arrogant, privileged, narrow minded, apes. You make my day more interesting with your phobia’s and stupid, blind, flag waving ‘patriotism’ to the owners of ISIS and most other of the world’s afflictions. But then, you chose to live with the hillbillies and narrow minded flotsam of America. Education will never be popular in that part of the country. Never has been.

As for your last sentence, I treat intelligent adults respectfully, but I don’t consider you an adult or truly intelligent, just brainwashed. I also take children into consideration, but you are not a child.

As for caring what you think or write about me. As I said before, at OCS, professionals tried to get me rattled, and were unsuccessful. You don’t even come close. Better watch that blood pressure.

Davy on Thu, 12th Nov 2015 7:19 pm 



That is probably your problem Makster you don’t get rattled because you are mentally ill. I read your comments daily and they consist of talking yourself up and talking others down. Obviously you have a self esteem issues because of a failed American life. You are stuck in a small apartment in a huge city of 20MIL with nowhere to go. You dream of the faux farm but I see no evidence you are ever there.

I am just glad you are talking to me now. For such a long time you were like an angry bitch and gave me the silent treatment. I will enjoy waking up to find out what you have puked out. I am going to hound you daily Makster and find great pleasure in it. All the more enjoyable now that you are talking to me.

makati1 on Thu, 12th Nov 2015 8:05 pm 



Again, Davy, I don’t give a rat’s ass what you think of me. I have again decided that you are not worth my time. So, I am going to ignore you as I do a few others here who are so brainwashed or just plain uneducated, that they are not worth my rebuttal.

You can stop reading my comments to pick out something to defend your worthless, arrogant, warmongering, sick country for. Yes, I say YOUR country, not mine. Were I financially able, I would have a different passport tomorrow.

I am doing the closest thing by not living in the Us and being brainwashed every minute I am awake. I no longer consider the US to be anything but a debt infested, uneducated, ignorant, drugged up, terrorist organization plunging into a 3rd world much worse than the existing one in Asia today.

Enjoy your farm, it’s employees and your trips with your wealthy relatives and believe that you are prepping for the future. You will never see 70. LOL

Davy on Thu, 12th Nov 2015 8:15 pm 



Makster please don’t ignore me. I can’t live if livin is without you. Lol, you seem agitated Mak. Lighten up Makster you are taking life too seriously. I thought nothing could rattle you. What a pussy!

simonr on Fri, 13th Nov 2015 3:10 am 



one big happy dysfunctional family