The chart displays two lines: the blue line traces out exponential growth
(for example, in demand for oil, deficit spending, etc.) while the lower
lines traces out exponential depletion (for example, of oil reserves).
The consequences of a "modest" 3% growth/depletion rate are striking and sobering.
In the ongoing effort to help people understand what exponential or compound growth
(and depletion) mean, I have prepared the following chart.
The chart depicts 3-percent growth and depletion. It does not matter what is measured,
whether it is energy, debt, land, or population, the effects are the same and
they are important to understand.
Time is not your friend and why the Red Queen’s Race cannot be won:
The arrows indicate how long it took to obtain an incremental level (100).
What does this mean? Considering debt growth, the current monetary system
requires positive debt growth or the dreaded deflation will occur. As you
can see to achieve the first increment of 100 took nearly 80 periods. The
second period to achieve the next increment took about 11 periods and the
third just over five.
The harsh reality demonstrated here is that it is not a matter of if the
physical economy will be able to support such debt growth but only a matter
of when it implodes. Remember, the inverse curve represents the necessary
decline in savings or the ability to save. At the point that the government
is giving away money, why should anyone work?
Bailing out neither banks nor sovereign states can save the status quo.
This principle applies in terms of crude oil usage. It is most damaging to
the arguments that we just need to find another giant field. It is also why
Hubbert was absolutely correct in his assessment. The time to deplete an oil
field the size of the one in Saudia Arabia decrements as seen here (if demand
remained constant). With no new major finds and most fields mature or declining
we are already too far behind the curve to prevent shortages.
I think (hope) with these examples you get the idea: We are on a collision
course with reality.
In an email exchange, I noted that giving Greece more bailout money did nothing
to change Greece's inability to make the payments due on their current debt, much less
additional debt. I also noted the impact of
Jevon's paradox on oil consumption; the paradox is that
"technological progress that increases the efficiency with which a resource
is used, tends to increase (rather than decrease) the rate of consumption of
that resource." Harun responded thusly:
Your thought about Greece is an excellent point and was one of the reasons I produced
the chart. Greece's physical economy cannot support its financial economy. This is
the end game in the "debt as money-post industrial" economy for all OECD countries.
California is another good example of the effects of compression. If we were to
look at the growth rate (inflation) as necessary to maintain a constant standard
then the problem for the physical economy is apparent. In reality it is not a
"problem", it is an impossibility.
If we were to look at the first 80 periods as
years then growth was considered strong and the reliance on inflation not really
a concern. But then in order to maintain status quo the same amount of credit
expansion had to be created in just about 11 years, then 5. Can products and
services grow at this rate? Advances in technology, CDO/CDS have prolonged the
endgame and made some people very wealthy but the leverage is way beyond what
the physical economy can ever hope to service let alone repay.
I think the chart also emphasizes the problem with China. Unless something changes,
this chart reveals that energy will be a huge obstacle to growth in China. What
is thought of as the China Phenomenon will likely turn into the China Syndrome redux.
For arguments sake, if we were to say that there was one large oil field, it was
used up in 80 years. Then we found another and with demand constant, even devoid
of increases in technology, we used the second field (which was the same size as the
first) in about 11 years. Then we got lucky and found another field of the same
exact size as the rest but with demand growing at a constant 3 percent, we used
it up in about 5 years. Regardless of how many energy deals China manages to
finagle, the situation, short of a miracle, is hopeless.
And, as predicted in the exponential model instability is also occurring with
Finally, along the lines of Jevon's paradox, and, If you give a mouse a cookie...
bringing jobs back to the US will not necessarily solve more comprehensive
issues as the resource economy would not be able to support the physical economy.