Growth forever! But what if.....?

Below is a snippet of an interesting post by Gail Tverberg.  The basic premise is simple:  our political and financial overlords are making assumptions about “growth” going forward which will allow them to both pay back past debt and take on more debt.

But what if…..?

What if growth isn’t in our future because we have hit resource based limits?  What if  the economy doesn’t – can’t – continue to expand forever?  That’s the point of the first graphic.

The point of the second graphic is even more ominous.  Her point is that oil production is likely to rapidly decline in the very near future.  The reason is not as many would suspect at first:  there is plenty of oil in the ground, but it is more expensive than ever to get to.  High prices destroy demand which means that prices will fall, thus eliminating the incentive to spend enormous amounts trying to get the stuff out of the ground.  It is a fascinating paradox.  And one that bodes ill for us, as we are simply not prepared.

read her whole post “More reasons why we are reaching the limits to growth” here

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Figure 2. Two views of future growth

The problem is that when limited oil supply is rationed by high oil prices, economic growth slows down, and eventually decreases (Figure 2). When this happens, it becomes much less advantageous to borrow from the future, because the future is no longer better than today. If an economic contraction occurs for very long, the whole debt system can be expected to undergo a major “unwind”.

Logic says the result would be fairly cataclysmic. We recently started seeing the beginning of this unwind with the financial crisis of 2008-2009. We are seeing more of the potential unwind with the problems in Greece and the rest of Europe, and with the US government reaching limits on borrowed debt. Exactly how this will play out is uncertain, but debt defaults in Europe could spread to banks worldwide, in one scenario.

With much less credit available, demand for extracted energy products would fall, because with less debt, people can afford to purchase fewer products that use energy, such as new cars. Prices of oil and oil substitutes will fall, making oil extraction unprofitable in locations where extraction costs are high. The result is not likely to be a slow decline, of the type attributed to M. King Hubbert. Instead, a much more precipitous decline can be expected (Figure 3).

Figure 3. Historical crude, condensate, and NGL production based on BP and EIA data, plus a Guesstimate of Future Oil Supply.

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