My post this week will be short and early as I am on my way to the ASPO-USA conference.
While watching this week's turmoil in the world markets, I thought back to a piece Howard Odum wrote in 1974. In it he wrote:
Worldwide inflation is driven in part by the increasing fraction of our fossil fuels that have to be used in getting more fossil and other fuels. If the money circulating is the same or increasing, and if the quality [of] energy reaching society for its general work is less because so much energy has to go immediately into the energy-getting process, then the real work to society per unit [of] money circulated is less. Money buys less real work of other types and thus money is worth less. Because the economy and total energy utilization are still expanding, we are misled to think the total value is expanding and we allow more money to circulate which makes the money-to-work ratio even larger.
I think what we are seeing is the convergence of colossal financial mismanagement with energy stringency. Not surprisingly the authorities think that only money is the problem, i.e., there isn't enough of it available to fill the holes created by the disappearing value of various types of financial instruments. But if energy stringency is also part of the problem, then merely filling the financial voids with new money will only add fuel to the already potent inflationary mix which I fear is about to ignite.
In saying this, I offer no solution to the problem as stated. The real solution is much harder: deep cuts in energy use, rapid investment in and deployment of alternatives, reworking the infrastructure including agriculture for a low energy society. I'm under no illusion about whether such proposals will be made at the highest levels since there seems to be little awareness of our energy predicament.
I title this piece, "The Last Bailout," because if we are at peak, then financial bailouts will do little to help us. In the past when society had rising energy supplies with large energy profit ratios, these financial bailouts could avert disastrous consequences. They would allow the economy to regain its equilibrium and await the next sustained upturn. But, what if there is no next sustained upturn? If that turns out to be the case, then even if additional bailouts take place after today, they will all ultimately be lumped together into one, namely, the last bailout. And, the last bailout will of necessity fail to work as advertised.