Finance / the Economy

• How Diminishing Returns and EROI can Lead to Economic Collapse

  What do diminishing returns, energy return on energy invested (EROI or EROEI), and collapse have to do with each other? Let me start by explaining the connection between Diminishing Returns and Collapse.Diminishing Returns and CollapseWe know that historically, many economies that have collapsed were ones that have hit “diminishing returns” with respect to human labor–that is, new workers added less production than existing workers were producing (on average). For example, in an agricultural economy, available land might already have as many farmers as the land can optimally use. Adding more farmers might add a little more production–perhaps the new workers…

• Low Gasoline Prices Bring US Inflation Down to Four Year Low

  A big drop in gasoline prices brought the US inflation rate for October, as measured by year-on-year change in the consumer price index, to just 0.95 percent, its lowest level in four years. The y-o-y inflation rate for the core CPI, which excludes food and energy, was 1.69 percent. As the following chart shows, trends for both the all-items and core CPI have turned downward over the past two years.Year-on-year data gives a good picture of medium-term trends, but it is also worth looking at monthly data, which tell us what is happening right now. The latest monthly data reveal…

• Why Rising Energy Costs are Responsible for Widespread Economic Recession

  How does the world reach limits? This is a question that few dare to examine. My analysis suggests that these limits will come in a very different way than most have expected–through financial stress that ultimately relates to rising unit energy costs, plus the need to use increasing amounts of energy for additional purposes:•    To extract oil and other minerals from locations where extraction is very difficult, such as in shale formations, or very deep under the sea;•    To mitigate water shortages and pollution issues, using processes such as desalination and long distance transport of food; and•    To attempt to…

• World Bank: Russian Energy Strength is Economic Weakness

  The head of the World Bank in Russia said Wednesday he was alarmed by the slowdown in the Russian economy.  The bank said the Russian economy was slow to emerge from a recession still gripping parts of the eurozone despite recovery elsewhere in the world. It said the government's investment activities slowed down in part because of the completion of the Nord Stream natural gas pipeline through the Baltic Sea. Its dependence on oil and natural gas exports, meanwhile, exposed the Russian economy to additional risks. With Europe finding new sources of natural gas, and Asian economies looking at Canadian…

• Economic Forecasting in a Time of Diminishing Oil Supplies

  What will the world economy be like ten years from now? Or fifty years from now? Is it something that we can forecast by looking at the past, assuming that past tends will continue?Figure 1Most economists today seem to think we can rely heavily on past patterns. If we can really assume that the economy will grow at 3% per year (over and above inflationary increases), then in 50 years, GDP (Gross Domestic Product) will be 4.38 times as high as it is today. Economists might assume a 3.0% growth rate in a developed country, like the US, and a…

• Clean Energy Damaging Europe’s Competitiveness

  For years Europe has been at the forefront of the renewable energy revolution, promoting and establishing global rules in this sector. There are signs however that this trend might change.The economic crisis has forced many European countries to reassess their clean energy policies, heavily reliant on substantial, and often irrational subsidies, that have started to severely bite into the seriously strained European budgets. So far, Spain, the Czech Republic and Bulgaria have decided to retroactively tax renewable energy operators.It is widely expected that Germany will follow the same path following this month’s general elections. The EU’s energy commissioner Günther Oettinger…

• Lebanon’s Economy Faces Collapse

  Bottom Line: Lebanon’s economy faces collapse, and foreign bidders on potentially lucrative offshore oil and blocks are about to be disappointed as the conflict in Syria feeds a political stalemate in Beirut and rising violence. What happens next in Syria will be crucial for Lebanon.  Analysis: The past three weeks have seen a rash of attacks in Lebanon—largely in Shi’ite-dominated areas of Beirut and in restive Tripoli—including two explosions outside two mosques on 23 August, which killed over 40 people and wounded hundreds more in Tripoli.  Amid the rising violence directly related to the conflict in Syria and the tension…

• Energy Return on Investment is too Low to Maintain Current Economic System

  My major point when I gave my talk at the Fifth Biophysical Economics Conference at the University of Vermont was that our economy’s overall energy return on investment is already too low to maintain the economic system we are accustomed to. That is why the economy is showing signs of heading toward financial collapse. Both a PDF of my presentation and a podcast of the talk are available on Our Finite World, on a new page called Presentations/Podcasts.My analysis is with respect to the feasibility of keeping our current economic system operating. It seems to me that the problems we…

• NORWAY: Investors Balk at Government Indifference

  Bottom Line: Norway’s pending plans to cut tariffs on gas transport by 90% will reduce income for pipeline investors by as much as $7 billion, adding to the lingering anxiety after a 2011 move to pull support from AAA lender Eksportfinans ASA and reduce it to a junk-rate lender. Norway feels emboldened by its status as the world’s largest wealth fund and home of Europe’s largest oil and gas reserves--enough so that it feels it can demonstrate selective indifference to investors.  Analysis: Norway still enjoys a stable AAA rating and status as the smallest default risk country in the world,…

• Russian Oligarchs to (Involuntarily) Fund Cyprus Bailout

  Negotiations for Cyprus’ bailout, which has hinged largely on its hydrocarbons future, have ended with Russia missing the chance to swap aid for offshore exploration licenses and the Greek Cypriots agreeing to an EU bailout package that hits at the Russian oligarchy by shutting down the island’s second-largest bank. Over the course of last week, Greek Cypriots were shuffling back and forth to Moscow in an attempt to lure Russia into a bailout package that would have given it a stake in the island’s estimated 60 trillion cubic feet of natural gas offshore—but it wasn’t a big enough stake to…