Like millions of others, you already know that something is just not right. Or perhaps a whole collection of somethings. Money is being printed at rates never before seen in world history, and yet the economy isn’t responding. We are drilling feverishly to coax oil out of tighter, deeper rock formations than in the past, and yet oil prices remain stubbornly high.
The world’s bee population is dying off quickly, as are an increasingly number of ocean fisheries. Aquifers that take thousands of years to recharge are being rapidly depleted and the cities and vast agricultural areas that depend upon them will not be able to continue as they are.
Simply put, massive change is upon us.
This Accelerated Crash Course represents over 10 years of intensive inquiry and fact checking, and weaves together the Economy, Energy and the Environment because it is where these fields overlap and intersect that the greatest story of any generation will get told.
When I released the original version back in 2008, it gained immediate popularity because many of the developments it warned of happened soon after. The global economy lurched to a halt, threatening another Great Depression, only this time on a global scale. Oil prices nearly hit $150 a barrel. Soaring cost of living led to revolutions across North Africa and the Middle East. Fukushima and the Deepwater Horizon crises exposed the fragility of our energy systems.
And here is 2014, we’re still grappling with the repercussions of these issues. And their root causes remain sadly under-addressed.
But intelligent, independent-minded people like you are waking up around the world to big picture told by this story.
I am going to try and expand your viewpoint. I might even challenge some of your most closely held beliefs and I am going to try to convince you that there’s little time remaining for you to educate yourself, start planning and take action.
The days of waiting are over. You are here watching this because you already know that something has shifted, and that there’s a new future in front of us. It is time to get busy.
The Three “E”s
So, what do I mean when I say “massive change is upon us”? Well, here’s where we need to burrow into the three “E”s, which is where we’ll spend the rest of our time in The Crash Course.
The first “E” is the Economy, which is the lens through which The Crash Course looks at everything.
We care about the economy because everything we wish to see happen technologically. All of our jobs and hopes and dreams depend on a functioning economy.
With a functioning economy, we can readily meet whatever challenges may come. Without one, well, much less is possible and we are all less resilient.
Within the Economy there are four primary areas of concern; exponential money, the first-ever collapse of aglobal credit binge, an ageing population, and a national failure to save.
The next “E” is Energy, and there we will discuss what Peak Cheap Oil implies for our economic system. It’s very important to understand just how over-dependent the global economy is to abundant and inexpensive supplies of energy.
In fact, this topic is so important that I should dedicate the entire Crash Course to it, but we don’t have the time.
And finally, the third “E”, the Environment, will be exerting its own significant economic burdens due to diminishing resources. Resource scarcity reduces what we can take from the natural world to fuel our lifestyles, and environmental collapse thresholds place increasingly obvious limits on the waste streams we can put back into it.
The story that I am going to weave for you cuts across all three “E”s and will make the claim that our very economic system is badly out of step with reality and will suffer severe instability and possibly collapse as a result.
It is fair to say that this particular constellation of issues, problems if you will, has never been faced before at these levels.
Not in your country’s history. And not even in human history – at least, not on such a global scale.
Whether you find this terrifying or exhilarating is simply a matter of your mindset. You can see this as a doomsday scenario, or as a once-in-a-lifetime call to action to make the world a better place for our generation and those that will follow. The choice is up to you.
But the key to making the best choice is being armed with accurate and detailed information.
I am going to make the claim that these problems are so intertwined that they cannot be solved in isolation. Instead, all three “E”s need to be considered at the same time because the same underlying pressure connects them all.
How are they linked?
By a very powerful law of Physics that we desperately need to understand a lot better.
Exponential Growth
Exponential growth is simply anything that grows by some percentage over time. Like GDP, auto sales, population, money in a bank account, bacteria in a Petri dish, or lily pads on a pond.
Here’s a classic chart displaying exponential growth – a chart pattern that is often called a “hockey Stick”. We are charting an amount of something over time. The only requirement for a graph to end up looking like this is that the thing being measured grows by some percentage over each increment of time.
The slower the percentage rate of growth, the greater the length of time we’d need to chart in order to visually see this hockey stick shape.
Another thing I want you to take away from this chart is that once an exponential function “turns the corner”, even though the percentage rate of growth might remain constant, and possibly quite low, the actual amounts do not. They pile up faster and faster.
In this particular case, you are looking at a chart of something that historically grew at less than 1% per year. It is world population. And because it’s only growing at roughly 1% per year, we need to look at several thousands of years to detect this hockey stick shape. The green is history and the red is the most recent UN projection of population growth for just the next 42 years.
If something grows over time, such as population, demand for oil, money supply – really anything that steadily increases in size --, and you graph it over time, the graph will look like a hockey stick.
Said more simply, if something is increasing over time on a percentage basis, it is growing exponentially.
Using an example drawing on the magnificent work of Dr. Albert Bartlett, let me illustrate the power of compounding for you.
Suppose I had a magic eye dropper and I placed a single drop of water in the middle of your left hand. The magic part is that this drop of water is going to double in size every minute.
At first nothing seems to be happening. But by the end of a minute, that tiny drop is now the size of two tiny drops.
After another minute, you now have a little pool of water that is slightly smaller in diameter than a dime sitting in your hand.
After six minutes, you have enough water to fill a thimble.
Now suppose we take our magic eye dropper to Fenway park and right at 12:00 p.m. in the afternoon we place a magic drop way down there on the pitcher’s mound.
To make this really interesting, suppose that the park is water-tight and that I handcuff you to one of the very highest bleacher seats.
My question to you is: how long do you have to escape from the handcuffs? When would the stadium be completely filled with water? In days? Weeks? Months? Years? How long would that take?
I’ll give you a few seconds to think about it.
The answer is: you have until 12:50pm on that same day to figure out how you are going to get out of those handcuffs. In 50 minutes, our modest little drop of water has managed to completely fill Fenway Park.
Now let me ask you this – at what time of the day would Fenway park still be 93% empty space, and how many of you would be just beginning to realize the severity of your predicament?
Any guesses? The answer is 12:45pm. If you were sitting idly in your bleacher seat waiting for help to arrive, by the time the field is covered with less than 5 feet of water, you would now only have 5 minutes left to get free.
And that, right there, illustrates one of the key features of compound growth. The one thing I want you take away from all this is: with exponential functions, the action really only heats up in the last few moments.
You sat in your seats for 45 minutes and nothing much seemed to be happening. And then in four minutes – bang! – the whole place was full.
This example was loosely based on a wonderful paper by Dr Albert Bartlett that clearly and cleanly describes this process of compounding which you can find on the Peak Prosperity website. Dr Bartlett said “The greatest shortcoming of the human race is the inability to understand the exponential function”. And he’s absolutely right.
With this understanding, you’ll begin to understand the urgency I feel – there’s simply not a lot of maneuvering room once you hop on the vertical portion of a compound graph. Time gets short.
And here’s the rub…as I’ll show you in a moment, we have an exponential money system. It must grow in order to work as it has been designed to. With such growth our financial system behaves well, and without such growth it weakens and will eventually collapse.
The central problem we face is really that simple and that profound. As any sixth grader can tell you, nothing can grow forever in a finite space. Our money system is built for a world without limits, which means it is built for something that does not exist.
That requirement for endless monetary and economic growth is now encountering very real limits. That’s why the global economy has been stumbling along since 2008. And the situation cannot be ‘fixed’, at least, not if that means returning to the growth rates we enjoyed for most of the 20th century. There’s no combination of policy tweaks, spending cuts, or investments that will allow our system – as it is currently designed - to run forever. Or even all that much longer, historically speaking.
What is Wealth?
To really understand why money cannot expand forever in a finite world, it helps to understand what wealth is. We can think of wealth as coming in three layered forms; at the bottom of the pyramid is primary wealth, thensecondary wealth, and finally tertiary wealth.
The original landed gentry were as wealthy as their lands were productive and their holdings expansive. Before the industrial revolution, in other words not too terribly long ago, this very basic connection was not only well understood, but it formed the basis for societal hierarchies. There were wealthy people who owned land, and there was everybody else.
The reason for this is simple; land is the source of primary wealth. Rich soils, concentrated ores, thick seams of coal near to the surface, oil, running water, and abundant fisheries are all examples of primary wealth. Today we might call this our natural resource base but once upon a time owning it was the literal difference between a life of ease and a life of hardship.
Secondary wealth is what we make or transform from primary wealth. Ore is transformed into steel, abundant fisheries lead to fish on the table, soil becomes food in the store, and trees become lumber.
The final layer, tertiary wealth, is all the paper abstractions that we layer upon the first two sources of wealth. Derivatives, stocks, bonds and every other paper vehicle you can think of is a form of tertiary wealth. Tertiary wealth is a claim on the other two forms. But that's all it is. Tertiary wealth is a claim on sources of wealth, not a source of wealth itself. The distinction is vital.
Without primary wealth there cannot be secondary wealth; and without secondary wealth there cannot be tertiary wealth. They form a long chain of wealth that begins with the abundance of the earth and ends with some impressively complicated paper-based abstractions that even the brightest Wall Street minds don't seem to fully understand. In fact, without the prior forms of wealth, tertiary wealth has no value at all. Which is very important to understand, because for many of us, tertiary wealth is all that we know. It seems very real to us and we base much of our future expectations based on how much if it we hold.
What about money, how does it factor into the wealth story? Money can be, and even should be, a store of wealth, but it is not wealth itself. The same as a stock, bond, or derivative, money is a claim on something. And that's all it is. A claim. It's not actually wealth itself.
Money has value because, and only because, it can be exchanged for something which, if we go far enough along the chain, is always a form of primary or secondary wealth. As long as money exists in a delicate balance with actual sources of wealth then it will retain its perceived value. In times where money is over abundant or resources are scarce, the relationship can and usually will change dramatically, a process we call inflation or deflation depending on the circumstances.
As long as money, and stocks, bonds, derivatives and every other tertiary claim, are in a rough balance with real wealth, then everything is fine. But history is littered with times when this balance got seriously out of whack, as it is today, and the defining feature of those times was what is usually called 'wealth destruction.'
However to those paying attention, wealth was not destroyed, it was really just transferred from the unwary to the wise. The unwary bemoaned the crippling rise in prices of basic necessities, but it wasn't a case of "things" becoming more expensive in terms of money, but rather it was simply a case of too much money being priced against the same amount of things.
Which is why having a clear understanding of how money is created – and how much of it is being created – is extremely important.
Money Creation
Now we’re going to travel to the headwaters to discover where money is actually created.
The process works like this.
Suppose congress needs more money than it has. I know, that’s a stretch! Perhaps it done something really historically foolish like cutting taxes while conducting two wars at the same time.
Now, Congress doesn’t actually have any money so the request for additional spending gets passed over to the Treasury department.
You may be surprised or dismayed or perhaps neither to learn that the Treasury department essentially lives hand-to-mouth and rarely has more than a couple of weeks of cash on hand, if that.
So the Treasury department, in order to raise cash, will print up a stack of Treasury bonds which are the means by which the US government borrows money.
A bond always has a ‘face value’ which is the amount it will be sold for and it has a stated rate of interest that it will pay the holder.
So if you bought a bond with $100 of face value and paying a rate of interest of 5%, then you’d pay $100 for this bond and in a year you'd get $105 back.
Treasury bonds are sold in regularly scheduled auctions and it is safe to say that the majority of these bonds are bought by big banks and by sovereign nations such as China and Japan.
The money that is used to purchase these bonds gets sent to the Treasury Department's coffers where is can be disbursed for the usual array of government programs.
I promised you that I’d show you how money first comes into being and so far that hasn’t happened, has it? The bonds are being bought with money that already exists.
So where does money come from?
Money is created by this next mechanism where the Federal Reserve buys a Treasury bond from a bank.
If you've been wondering what the so-called "Quantitative Easing" - or QE - programs are, this next bit describes them.
When the Fed buys a bond from a bank or other financial institution, they simply transfer money sufficient to cover the cost of the bond to the other bank and then they take possession of the bond.
It's that simple. A bond is swapped for money. The Fed has the money, the bank has the bond.
Now, where did the Fed get the money to buy the bond?
I'm glad you asked. It literally comes out of thin air as the Fed simply creates money when ‘buys’ this debt.
Such newly created Fed money is always exchanged for a debt instrument, be that a Treasury bond, a mortgage backed security (or MBS), or even corporate debt on rare occasions, so we can now put the title on this page.
Don’t believe me? Here’s a quote from a Federal Reserve publication entitled “Putting it Simply”
"When you or I write a check there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money."
Wow. That is an extraordinary power. Whereas you or I need to work to obtain money, and place it at risk in the markets to have it grow, the Federal Reserve simply prints up as much as it wishes, whenever it wants, and then loans it to us all via the US government, with interest
Given the fact that over 3,800 paper currencies (and a few metallic ones) have been rendered worthless due to mismanagement, wouldn’t it make sense to keep a very close eye on whether or not the Federal Reserve is acting responsibly with our own monetary unit?
What if they are overdoing it and printing too much? Because this is such an extraordinary power to have we should really pay close attention to what they are up to.
Exponential Money & Debt
Okay, look, we've shown you what exponentials really mean and how they speed up at the end. Remember all that's required to create an exponential system is that something, anything, must be growing by some percentage over time.
And we’ve looked at the theory and the mechanism behind money, where we learned that all money is loanedinto existence.
But is this a bad system? Do we really need to concern ourselves with understanding how money works?
After all, perhaps money and debt don't have to be exponentially growing at all, perhaps there's a subtle way to pay it all back that's hard to see in the mechanism. That's always possible. So let's look at it directly, using only data that either comes from the Federal Reserve itself, of other official US and world governmental bodies.
Since all money is loaned into existence, money and debt ought to behave the same and exhibit the same growth patterns, only debt should be larger than money because that's how the system is rigged to operate.
Let's start with money.
This is a chart of money using data from the Federal Reserve and I think you can easily appreciate the shape of the chart. We might just call it exponential and leave it at that, but scientists have a way of measuring these things that I think you'll find interesting.
If you happened to strip out the labels from both axes and asked me as a scientist, what sort of thing might we be measuring, and what we could tell about it, I'd try to recreate the data with a math formula to better understand what’s going on.
This process is called 'curve fitting' and it works like this. You take your data and then try and match it as well as possible with a variety of math formulas. The better the match, the better the so-called 'fit.'
The way we measure these fits between our idealized math formula and the data is with a number that falls between zero and one. This is number is called “correlation co-efficient” [true?]
The closer to one we get, the more perfect the fit and the more confident we are that our data and our math formula are somehow related to each other. Conversely if we get a number close to zero, then there's no connection at all between the data and our trend line.
As a scientist I used to get excited by results that were in the vicinity of 0.5. By 0.6 I was pretty excited. By 0.7 we had some very solid results to report to the world. By 0.8 - stop the trials! - we've got a winner. By 0.9 we'd begin to suspect that fraud might be involved.
So let's go ahead and fit an exponential curve against our money data and see what we get.
Oh my gosh, would you look at that? A nearly perfect fit and a result of 0.99. Our money supply, even with the wiggles and jiggles along the way, 2008 included, has been growing exponentially. And not just sort of, but as nearly perfectly as one could ever hope to find. Better than any results I ever derived in the laboratory, that's for sure.
Take a quick peek at the left axis and note that the money supply tops out at about 12 trillion dollars.
Now let’s look at the debt side of the story.
This chart is of total credit market debt. The data come from the Federal Reserve and it includes everything in America that counts as debt within the banking system. It includes state debt, federal debt, household and corporate debt. Auto loans are in here as is federal borrowing, student loans, mortgages, and state bonds.
What's not in here is the money the federal government has borrowed from the Social Security trust fund, nor are the unfunded liabilities of the federal entitlement programs nor any state or municipal pension shortfalls. This is just debt, plain and simple.
Well, we see the same exact exponential trend as our previous chart, except that the left axis goes all the way up to $57 trillion! Remember our money graph only went to $12 trillion. Neither of these results should surprise you because money and debt are created within the same system. That is an exponential system by design, and there's always more debt than money in the system.
So the evidence bears all this out.
If we look at only the US federal debt, a number that is in the news constantly, we see a chart that shows marked acceleration over the past twelve years.
And if you're thinking that perhaps the US can just continue to borrow from the rest of the world on this trajectory forever, have I got news for you. The rest of the developed economies are just as broke as we are, some even more so.
A 2013 study concluded that the world's developed economies were carrying over 375% of debt as compared to their gross domestic product, or GDP. Why is this important? Because if the total amount of debt is what a nation owes, then its GDP is its income.
In all of history we have exactly zero examples of any nation ever climbing out from under a debt load greater than 260%.
A while back the BBC put together the perfect chart that illustrates just how ridiculous it is to think that somehow indebted nations can borrow from someone else, you know, just until they get back on their feet.
The width of the arrows indicates just how much external debt each country owes to the others.
Here's France, Spain, Portugal, Italy, Ireland, Greece - oh boy - Japan, Germany the UK, and finally, drum rollplease… the US.
It has to be asked, if everybody owes everybody more than has ever been owed by any individual country before, exactly how is all of this supposed to work? I think we can agree that we cannot borrow it from somebody as there is no 'somebody' - everybody already owes everybody.
Next we might think - well, what if we just wiped all those debts out and just started over? In theory I suppose that possible, but in practice that's impossible without somebody eating the losses. It's not that the US owes "France" as a country, but US debt is held be specific companies, pension funds, endowments that might belong to universities or churches, and private individuals.
So hitting the 'reset' button means that retirees, schools and churches would be left with massive losses, and most likely wiped out in many cases. So that's not an option. The only real option, the one presented to us in virtually every news article and political utterance is economic growth.
It is through the miracle of economic growth, vast, huge enormous, unspecified, but certainly dramatic economic growth that all of this debt and money will be paid back.
There's just one wrinkle with that story.
GDP, or more casually what we call 'the economy,' cannot grow exponentially unless we have infinite resources.
Where some think this is a big problem but a future problem, I'm here to tell you it’s a very big problem Right Now. And the reason I think that is because the main fuel for growth, the most important one of them all, oil is now and forever more going to be expensive compared to the past, and even more expensive as we progress into the future.
Here's where the story gets really interesting.
Peak Cheap Oil
Now we get to the very heart of the story. It is my background as a scientist, particularly one trained in the natural sciences, that guides me the most here.
Studying living things and natural systems quickly leads to the very obvious conclusion that everything grows larger right up to the limits of the energy it has available to it. Animal populations expand up to the limits of their available food supply, but no more, and plants cannot grow at all without sunlight, which is their primary source of energy.
Tilting this view slightly: suppose I put you on a desert island and give you every possible resource in the world, all the minerals and all the money, - gold, silver diamonds - anything and everything you could want....but no energy. That is, no food, which contains chemical energy, and no oil, no electricity and no coal.
What could you do? Well, you could use up the energy stored in your body but once that was gone, you'd be able to do nothing at all. You'd have no economy on your little island, even though surrounded by unimaginable resources and wealth.
The economist Julian Simon once proclaimed that energy is the master resource, and this means that energy is the absolutely essential input at the beginning of each and every economic unit of production and every transaction.
I suppose this just makes common sense, but we live so completely surrounded by energy in all its forms that in order to notice the way it touches every minute of our waking day it has to be pointed out.
And our story is mainly focused on oil, because that is the most important economic lubricant of them all. 95% of everything that moves from point A to point B in our global economy does do because of oil.
In fact, take a look around the room you are sitting in and try to find just one thing that got there without oil being somehow involved.
From a really macro perspective, the correlation between oil use and economic growth is very, very tight.
In fact, we can tease out a very simple relationship that has held for over five decades and that is that every one percent increase in global GDP required roughly a one-quarter of a percent increase in oil production.
Looking at that 4 to 1 relationship, we can say that if the world's central banks and various nation-state politicians want to create global growth of 4% to 5% per year, they are implicitly assuming that oil production will also grow annually by 1% to 1.25%.
In other words, exponentially.
But can it?
There are just two things we need to understand about oil if we are going to answer that question.
The first is that we shouldn't really concern ourselves only with the amount of oil that comes out of the ground. What we should really keep our attention on the net energy we get from it, meaning the energy that's left over after we deduct what we had to use to get the energy in the first place.
To illustrate this, suppose I told you that we had just found 100 billion barrels of oil in the ground? That would be awesome, right? Now what if I told you it was in the center of the earth and would cost us 200 billion barrels of oil to go and get it?
Oops. That would mean we'd use more energy to get the oil than we'd be getting in return and that means it's a losing proposition.
The important point here is that society does not run on the total amount of energy, but the surplus energy left over. As soon as you are spending one barrel to obtain one barrel, there's no surplus energy – also called “netenergy” -- to go around for the rest of society to use in all the myriad ways that we collectively call 'the economy.'
As you drive around on smooth roads and over gigantic iron bridges, walk into stores and see the incredible displays of material abundance to purchase, or look up and see planes criss-crossing the sky, I invite you to look beyond the obvious and see the energy that makes all of that possible.
So net energy is the first thing to keep in mind.
The second issue is that we are past the peak of cheap oil. There is no debate at all about this idea.
Now I'm sure you've heard recently there's something of an energy revolution going on in the US. The current story goes that the US is producing more oil than it has in a long while, that the US will someday be a net exporter of oil, and that this is all due to a technological revolution.
Those statements, in order, happen to be true, completely false, and not exactly right, respectively.
Yes, the US is producing more than it has in a long while, that is true, but the only way the US could ever be a net exporter of oil is if its internal demand drops by an unthinkable 4 or 5 million barrels per day, while domestic supply increases by at least another 2 or 3 million barrels per day.
As for the final point, we've known about the shale beds for decades and have had the technology, -- usually called 'fracking’ -- for decades as well. What we didn't have was oil safely over $60 per barrel. It wasn't technology and good old fashioned ingenuity that unlocked the shale oil deposits, but price.
But what if oil drops back down below $60 per barrel? The activity in the shale plays would come to a complete halt because it just wouldn't pay to drill.
Even if you don't know all the complexities of the global oil markets, fracking and all the rest, if you drive a car or heat your home with oil you know this; oil is no longer cheap, as it's been over $100 per barrel for a few years. The reason for that is simple enough to understand, the cheap stuff is gone, and we are now paying the price required to get the harder, deeper, and more difficult to extract oil out of the ground.
And someday that too will be gone and we'll move on to the even harder, deeper and more expensive to produce oil that will then remain. Oil is expensive and it will stay that way. Cheap oil is forever in the rearview mirror.
But here's the important point buried in that statement; expensive oil is the same thing as low net energy oil. We don't run our complex society and intricate global economy on oil deposits, but on the *surplus* oil left over after exploration and production take their required cuts.
Expensive oil tells us that there's simply less left over as surplus to fuel the global economy.
Just as importantly, our ever-growing piles of money and debt are implicitly assuming that there will always be a larger economy to match them against and that assumes that there will always be more net oil energy in the future.
This is a colossal bet and if it turns out to be wrong, if the premise itself is incorrect, then - Houston - we have a problem.
How far past the peak of cheap oil are we?
Well when it comes to any resource, be it a mineral or oil , you have to find it before you can produce it. The trend in world oil discoveries is quite illuminating. This next chart shows world oil discoveries by decade, for the world, and the left axis is in billion of barrels. In the 1960's the world discovered nearly 500 billion barrels of oil.
And this oil that we found is all cheap oil. Located near the surface and freely flowing, no fracking required.
Now it's true that the shale plays have the potential to change the shape of this chart. If we take the most aggressive estimates of US shale reserves, some of them provided by the oil companies themselves so take them with a grain of salt, and add them back to this chart, what do we get? Well, while it's nothing to sneeze at, the discoveries are actually quite modest by historical standards;
Again, these shale plays are wonderful and magnificent in many ways but what they are most certainly not is cheap.
Interestingly, and tellingly, the world more than doubled its expenditures on oil exploration and production activities between the years 2005 and 2012 from $300 billion to over $600 billion dollars. What would you expect would have happened to production based on such a huge increase?
I would have expected the same thing, a pronounced increase in oil production, but we saw no such thing. Give or take there's roughly the same amount of oil being produced globally today as there was in 2005, only we're spending twice as much on getting it out of the ground.
Okay so here's the summary. Oil is the most important resource of them all for a growing economy. It is themaster resource and that resource is no longer cheap which means we have to dedicate more and more energy to simply producing energy leaving less for everything and anything else we might choose to do economically.
While there's still plenty of oil left, it is highly doubtful that we'll be able to produce a lot more than we currently do. Perhaps a bit more, maybe even 5%, 10% or even more. But it will come at a cost. We'll experience that as higher prices, but underneath you now know that it's really the declining net energy that is the main problem we face.
The really big predicament here is that our entire money system, including both all the debts and the currency, as well as all the unfunded liabilities can be met if and only if we have sustained, permanent economic expansion.
When the time comes to admit that we cannot have permanent economic expansion we'll also have to admit that we cannot grow our debt levels any further.
That day is not far off, and when it arrives everything will change. These are all very big, very powerful trends that are right here, right now, and anybody can Google up the data and see it for themselves.
Or see it at the pumps every time they fill up, or more carefully see it in rising food stamp usage and struggling dual income households as less net energy translates into less available to go around which means it's just not as easy to get by as it once was.
If this trend of humans going after ever scarcer, deeper, more dilute, and generally poorer resources was limited to oil we might be tempted to think there must be some way around it.
But that's not the case. That basic theme can be found everywhere, all across the globe, and it tells us a lot about how the future is going to unfold.
Environmental Constraints
When we wander over to the third E in this story – the Environment - we note that both the increasing demand of exponentially more resources being extracted from the ground and exponentially more waste being put back into various ecosystems.
Because we are trying to assess whether we can justify ever-increasing amounts of money and debt, for now let's just concern ourselves with the resources we take from the natural world to support our global economy.
Oil is not the only essential resource that is fast becoming more expensive to produce, harder to find, or both. In fact, , we see an alarming number of examples depletion of critical resources that almost exactly mirror the oil story.
First we went after the easy and or high quality stuff, then the progressively trickier, deeper and or more dilute stuff.
Here’s one of them.
When we first came to this country, we were finding some pretty spectacular things just lying around, Add image like this copper nugget. Soon those were all gone, and then we were onto smaller nuggets, and then onto copper ores that had the highest concentrations.
Now?
Now we have things like the Bingham Canyon mine in Utah. It is two and a half miles across and three-fourths of a mile deep, and it started out as a mountain. It sports a final ore concentration of 0.2%. Do you think we’d have gone to this effort if there were still massive copper nuggets lying around in stream beds? No way.
Let’s take a closer look. See that truck way down there? It’s fueled by petroleum; diesel, specifically. If we couldn’t spare the fuel to run that truck, what do you suppose we’d carry the ore out with? Donkeys? These trucks carry 255 tons/ per load. Suppose a donkey could carry 150 lbs. This means this truck carries the same in a single load as 3,400 donkeys. That’s quite a lot of donkeys.
My point here is that a hole in the ground a couple miles across and three fourths of a mile deep is a pretty spectacular display of the use of energy. Again, instead of seeing a really big hole, I invite you to look past that and think of how much energy it took to make that hole. When energy begins to get scarce, it seems unlikely to me that we’ll be digging too many more holes like this one, which means we'll be taking less copper out of the earth to support our desire for an ever expanding economy..
Now here’s where the concept gets interesting. The amount of energy and money that is required to extract any mineral or metal is a function of the ore grade. We would measure that as the percent of the ore that consists of the desired substance. So a 10% copper ore, for example, would consist of 10% copper and 90%, uh, other stuff that's not copper. If we plot out how much other stuff we have to extract and then dispose of in pursuit of our desired substance, we get a chart that looks like this. Look familiar to you yet? It should; it’s a non-linear chart.
It tells us that if we had an ore body with only 0.2% copper in it, we’d need to mine 500 pounds of ore in order to extract one pound of copper. I used this particular value because that happens to be the concentration of the Bingham Canyon mine. This helps to explain why this hole is so big. It tells us that without these giant trucks, we probably wouldn’t be mining such low ore grades. It means that we are already on the far right edge of the bell curve, in terms of energy and cost.
Do we do this because we like the challenge of low ore grades? No, we do it because we’ve already high-graded all the other known ore bodies, and this is what we are down to. We do it because it is the best option left. We do it because, after only 200 years of pursuing an industrial economy, we’ve already burned through all the better grades.
The story here is that we, as a species, all over the globe, have already mined the richest ores, found the easiest energy sources, and farmed the richest soils that our Environment has to offer.
I *could*easily fill hours of more video with additional alarming examples of resource depletion; but the bottom line is this: We have taken several hundreds of millions of years of natural ore body, fossil energy deposition, aquifer accumulation, soil creation, and animal population growth -- and largely burned through them in the few years since oil was discovered. It is safe to say that in human terms, once these are gone, man, they’re gone.
So, if we are getting less and less net energy for our efforts, and the other basic resources we need to support exponential economic growth are requiring a lot more energy to extract because they are depleting, then does it make sense to keep piling up exponentially more money and debt? Isn't it just common sense to observe that money and debt have to exist in some sort of relationship and proportion to primary and secondary wealth?
Growth vs Prosperity
At some point in this story it becomes the case where we can either enjoy more prosperity, or more growth, but not both.
Growth requires energy, and growth also requires that there be an excess of stuff that can be dedicated to the effort. The basic ideology of growth can be summed up in one word: More. To grow, you always need more.
But to be prosperous, you at least need Enough.
All of the developed world's bond and stock markets are priced with the implicit and explicit assumption baked in that there will be continued future growth in the economy, corporate earnings, money supply, debt and all the rest.
But what if that growth never arrives? What then?
Without robust growth those markets will be worth a lot less than their current valuations, and that's a huge risk for individual portfolios, pensions, endowments, and even social stability. But simply put: If we do not properly allocate our dwindling surplus resources towards prosperity, and instead default into the comfortable and familiar pattern of growth, which will someday stall and then go into reverse, then we risk a future of less prosperity.
This, then, is the greatest challenge of our times – properly recognizing where we want our remaining resources to go and then making that happen.
I, for one, want to see continued advances in energy efficiency, medical technology, and everything else that modern society can offer.
I want my children to have reasonable and fulfilling jobs, and I personally would vastly prefer to live in a world of happy and prosperous individuals versus one that is merely larger, but with less to go around for each person.
It is our future prosperity that we place at risk if we allow ourselves to do what is easy – that is, take the path of least resistance and simply grow – instead of doing what is right, which is directing our surplus towards a more prosperous future.
More ominously, if we don't get this story right, we risk a major economic decline, a future simply filled with less instead of prosperity, and the possibility of a currency crisis if not collapse.
Conclusion
Now we can finally put all three “E”s in one spot.
Our Economy is based on an exponential money system that explicitly enforces a paradigm of continuous growth and implicitly assumes that the future will be much larger than the present.
Growth requires Energy; there is no getting around that; so the trends in Energy stand in stark contrast to the major underlying assumptions upon which our entire economy and way of life are founded. Peak Energy is a very real, very close prospect.
In the rest of the Environment we see, very clearly, that we humans have high-graded virtually every resource and are now working our way into poorer, thinner, deeper territory as we seek the resources that define our lifestyles. Biosystem stress is flashing warning signs on our dashboard. Pretending that we can just carry on consuming as we have, while the world population increases by 50% over the next 40 years, is not a workable plan. In fact, it is no plan at all.
I want to be sure to get this point across clearly. Our economy must grow to support a money system that requires growth, but is challenged by an energy system that can’t grow, and both of these are linked to a natural world that is rapidly being depleted.
Taken all together, it becomes quite clear that our challenge is to adapt to a world of less, not more. A world where we have to carefully prioritizing and managing what we have left, versus hurriedly pursuing the next lower grade of resources to exploit.
Let me close by saying that if I thought these represented unfixable problems, I would not have dedicated, full time, the past decade of my life to getting this warning message out. I am an optimist, and I want a better future of our own design.
It’s time to think big, develop a clear sense of priorities, and cast off the adolescent view that nothing bad is going to happen to us because so far it hasn’t. And it’s time to show that we care about future generations that are going to follow us. How do we wish to be judged? What is our legacy?
For better or worse, you happen to be alive at one of the most dramatic turning points in our species’ history that ranks right up there with climbing down out of the trees. The only real question is, what role do you want to play? Shall your life be filled with fear or a resolute sense of purpose?
The only way these challenges can become insurmountable is if we let them, by ignoring them for too long.
Call to Action
Before I put the original crash course together back in 2008, I lived in a big waterfront house, I had a deep-sea fishing boat in a slip a mile away from my doorstep, and I was very much living “in the system” as vice president at a Fortune 300 company.
But once I brought all that information together, something shifted deep within me and I knew I could no longer live my old life. It no longer seemed relevant to the future I saw approaching, nor fulfilling.
In light of all this, I found myself facing the huge question of “What Should I Do?”, which many of you listening are likely asking yourselves right now.
And for a time, that question overwhelmed me, because back then, there was much less public discussion of these issues and far fewer models for how to prepare for these coming changes – let alone step forward to meet them with any degree of optimism.
So I resisted doing anything at first.
But eventually I simply had to align my actions with my values and in the years since, through study and exchanging ideas with smart, hopeful, engaged thinkers around the world, I learned how.
So, what exactly did I do? Well, I changed a lot in my family's life. We moved to a more rural area where support from the community was far stronger than the impersonal suburban area we left behind.
We began to grow a portion of our own food, shifted our saved wealth away from traditional paper investments and towards our health and home, always with the goal of decreasing our dependence on the potentially fragile systems that deliver our energy, food and water.
So that was our response. And if you, like millions of others, felt concern, anxiety or even fear while watching this “Accelerated” Crash Course, then it's time for you to take control of your life, too, and begin doing things differently – whatever that means for you.
But know this, even if you don’t have the same or as many options as my family did, there are a LOT of things that you can and should be doing.
They only require that you to decide to begin doing them. You don't necessarily have to move, or buy a lot of expensive stuff; but you do have to be willing to start changing what you do.
So if there’s one message to take away from this Accelerated Crash Course, it’s this: It’s time for you to become more resilient and more engaged. Things are changing quickly and nobody knows how much time we have before the next economic, ecological or energy related crisis erupts. Nobody knows when, but we do have a pretty good idea of what is coming.
Either you respond to these inevitable changes or they will happen to you. That's the simple choice we all face.
Yet I really want you to understand that this is not a message of doom and gloom, but one of excitement and hope. How so?
Because it is within your control to enter the coming future with a higher degree of security, prosperity and fulfillment than you enjoy now.
By using the time we still have available to us now, before the trends described within the Crash Course arrive in force, to build resilience. To invest in the practices that will increase your quality of life, whatever the future may bring.
Of course this, is a very big topic, that extends from financial resilience, to physical resilience to emotional resilience - We go into much greater depth into all of these at the PeakProsperity.com website.
But in summary, here are the first steps we recommend for everyone:
- Invest in community – In the end, no one can ever be 100% prepared for everything. The #1 factor in your success in weathering any future shocks will be the strength of the community supporting you. Make and deepen relationships with those important to you. Be sure to know what role you play and why others will value it if difficult times arise.
- Protect the purchasing power of your financial wealth – Given the extreme economic risks we’ve detailed in this video, we recommend everyone own at least some gold & silver to protect against the probability of a currency crisis. For similar reasons, we’re not big fans of “paper investments” like stocks & bonds right now. But if you do own them, we recommend working with a professional money manager who understands the risks posed by the Three Es. If you can’t easily locate one on your own, we know a few good ones.
- Reduce your dependence on fossil sources of energy – This includes both decreasing your personal energy footprint, plus potentially generating some of your own energy (for instance, adding a solar hot water heater to your house). With a little practice, you’ll realize that a small number of changes to your current behavior can dramatically reduce your vulnerability to the price of oil and other fossil fuels.
- Source more of your calories locally – The produce in most grocery stores often travels thousands of miles to arrive there. Finding local food providers, plus possibly growing a small percentage of your food yourself, goes a long way to reducing your exposure to price spikes due to increased transport costs. Plus, you’ll find your food is a lot healthier and better tasting.
- Boost your emergency readiness – The one thing we can say about a future defined by the Three Es is that there will certainly be surprises along the way. The difference between being even a little prepared for these versus not at all will prove massive. Use the time you have now to put in place emergency supplies for Add food, water, power, health care and other essentials. Hopefully, you won’t need to tap them – but if you do – you’ll be very grateful you had the foresight to put them in place.
- Improve your health – a future of less energy means a future of having to do more things ourselves. In certain cases, medical care may either be too expensive or even unavailable at any price. Staying healthy – both physically and emotionally – will take on an entirely new, and heightened, importance.
These steps I’ve mentioned are simply a short list of responsible actions to the changes that are coming.
Again, we spend a lot of time discussing a wide variety of possible responses in greater depth at PeakProsperity.com because there are as many intelligent responses as there are different personal circumstances.
But whether you are young or old, rich or poor, urban or rural - there are concrete steps you can take beginning the second you stop watching this video.
We invite you to find those things that really serve you, that make you happier and healthier, and cost less and increase your quality of life even as you consume less.
And as you begin this journey, you’ll soon learn that it’s about much more than just yourself. Resilient individuals create resilient families, which in turn lead to resilient communities, then resilient towns & cities, then states and whole countries, and eventually a more resilient planet. By taking action in your own life, you open the door to a better future for all of us.
However you go about doing that, know that you have our support. If you’d like to join other like-minded people who are proactively facing our current and future challenges and opportunities head-on, please come visit us at PeakProsperity.com .
I think it’s safe to say that the next twenty years are going to be completely unlike the past twenty years.
Our mission at Peak Prosperity is to create a world worth inheriting and we eagerly await joining with you on that pursuit.
I sincerely hope you’ll take the right actions now, while we still have time and resources, to position yourself wisely – so that for you, and your loved ones and the generations that follow, the changes brought by the next twenty years will be prosperous and joyous.
The time of waiting has ended. The time for action is now.
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