Inflation or Growth Ridiculous Options

We have just sent out the following media statement (but have left out my phone number for this version)

Media Statement

13 March 14

Inflation or Growth Ridiculous Options – New Economics Party

The unproductive arguments raging among economists and central banks about when and how much to raise interest rates to curb inflation illustrates the complete failure of conventional economic theory, according to Deirdre Kent, spokesperson for the New Economics Party.

“Here we have the Reserve Bank putting up the official cash rate to keep inflation below 2 percent and the manufacturers saying that will slow productivity and put people out of work. Economists argue themselves round and round.

"It seems then that under the orthodox economic theory, you can’t both avoid inflation and have a thriving economy. A small child can see how stupid this is. Surely, the child will say, intelligent adults can invent an economic system where there is no inflation yet there are jobs at the same time?

"The problem is that governments and central banks are relatively helpless when they allow banks issue 98% of the country’s overall money supply as they do in New Zealand. They have few tools at their disposal to curb inflation. We end up with this inane cycle of inflation one minute and unemployment the next.

"During the Depression, Wörgl, a small town in Austria, created its own money and charged a circulation fee. Every month the holder of a Work Certificate had to buy a stamp and place it on the back of the note to keep it valid. So the money circulated fast. At one stage there was inflation, so some notes were withdrawn from circulation. Over 15 months, unemployment in Wörgl dropped 25 per cent, when in the rest of Austria it had risen 10 per cent during the same time period."

The New Economics Party supports a return to state seignorage, where the country's legal tender is issued by the Treasury and not by commercial banks.

The energy return cliff and the end of growth

When we first started talking about peak oil (I heard about in 2004) we were worried about the price of oil going over $100 a barrel.

Many people say “They will find something”  They hear a radio item about shale gas being plentiful and are happy. Or others might dismiss it as a plot by the left. As oil gets discovered in so many new corners of the globe, people now say the concern about peak oil was unnecessary. But actually, because of climate change, almost all those resources have to be left in the ground!

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Once a barrel of oil would be enough energy to extract 100 barrels of oil. But nowadays we need much more energy to get energy.

Then we had the Global Financial Crisis in 2008 and all got busy worrying about housing bubbles, derivatives, debt bubbles, too big to fail banks and bailouts. This is all important stuff. The price of oil declined as the global economy declined and now keeps repeating these waves. Affordability oil became the issue.

In 2012 that same brother in law commented that my worry about oil was unfounded as the oil price hadn’t gone up as much as forecast and “they were always finding something”.

Now I realise what is happening and there is no better little book to explain it than the one former Green Party leader Jeanette Fitzsimons recommended in a recent talk run by the local Quakers. The book that blew her mind was The Perfect Storm – Energy, Finance and the End of Growth by Tim Morgan, Global Head of Research at finance broker Tullett Prebon. It is freely downloadable at http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf. I have printed it off and had it bound.

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The Net Energy Cliff according to Tim Morgan

Morgan says: There are four factors bringing down the curtain on growth. The economy as we know it is facing a lethal confluence of four critical factors – the fall-out from the biggest debt bubble in history; a disastrous experiment with globalisation; the massaging of data to the point where economic trends are obscured; and, most important of all, the approach of an energy returns cliff-edge.

When oil bubbled from the ground in Saudi Arabia a century ago, only one barrel of oil was required to extract 100 barrels of oil. The energy return on energy invested (EROEI) was 100:1. But for tar sands it is 20:1, North Sea oil today 5:1, shale oil 5:1 or less and biofuels 3:1. He says below an EROEI of 15 the profitability falls off a cliff. For decades EROEIs are declining. Few discoveries today offer much more than 10:1. So as time passes economies are spending a larger percentage on energy. At the household level when petrol and power costs rise we have less and less for other essentials. A nasty little graph  of oil’s dying EROEI is shown at http://deepresource.wordpress.com/2012/11/22/eroei-estimates-for-shale-oil/

The economy is a surplus energy equation not a monetary one. Too much energy has to be reinvested into energy extraction and too little energy is left for the essentials of food, government services, housing and investment.

The interesting thing is that Tim Morgan works for Tullett Prebon. It is the messenger which is unusual saying all these things. It isn’t Richard Heinberg or some sandal wearing, folk dancing greenie. In a way Tullett Prebon seems to be taking over where Matt Simmonds left off.

I think the most scary thing in his whole book is the graph of the energy returns cliff. While we blithely go into debt to build motorways and while we waive civil rights to protest at sea about deep sea oil drilling, it must be worthwhile paying attention to what this energy firm is saying.