Apocalypse Not Yet

I was talking to my independent financial adviser the other day. He’s a patient man. He mentioned that I’ve been predicting the cataclysmic disintegration of the financial system for 10 years now.

Ten years. So it is. Although to be fair, I got past the ‘Armageddon tomorrow’ stage quite a long time back. The point my IFA was wearily making is that I still won’t be convinced that Business As Usual (BAU) is sustainable whereas he can’t see what’s wrong when the markets keep going up and the funds his clients are invested in keep growing nicely.

A courtesy call isn’t the place for a discussion about net energy and turning points, so I agreed to his proposed reallocation of my modest exposure to the markets and left it at that.

The thing is he’s right; there are very few signs on the surface that much is wrong with the economy. The big picture looks, if not rosy, at least reassuringly ‘normal’.

Yet this reassuring picture is made up of details that are consistently unsettling. The financial woes of schools and the NHS, even before the back-loaded Private Finance Initiative interest payments start to kick in. The bursting of the university-places-for-all bubble as more and more school leavers recognise it was only a scam to load them up with debt in return for mostly worthless degrees.

Behind all this is a sense of growing weakness; like a racing cyclist who’s been unable to take enough food on board – their finely-tuned system wants to keep going but the flow of fuel to the muscles is no longer sufficient.

When the flow of high-quality energy from coal faltered a century ago, oil and gas kicked in with the thermal bonanza that took the industrialised world from Kittyhawk to the moon and from the Bell telephone to the Internet.

This time round, there are no more massive seams of cheap BTUs to be mined. It’s manifested in the phenomenon where oil producers can no longer extract oil profitably at the kind of prices consumers are willing or able to pay. Which is another way of saying that net energy is entering the twilight zone.The fires under the boilers are dying down. Renewables will realistically run an economy about 25% the size of today’s.

That’s an article for another time, though. The take-away today is that the solid mass of thermal Jenga blocks that underpins our way of life has been eroding since the Millennium, when net energy turned the corner. What’s happening to the NHS, pensions, the auto industry and almost everywhere else you look are the first small cracks you see in the soil at the top of the slope as the land starts slipping.

Let’s see how they widen over the next 10 years. Easily far enough to swallow a good many of today’s expectations, I’ll bet, even if there’s no full scale avalanche.

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