bitesize ransonomics #1


The first in a brand new series of considered meanderings on the economy and all things finance, delievered in bite size chunks that even the likes of Wil & Joe can understand… welcome Mr Keyworth to R$N. Pleased, impart your distillations…

When will the recession end?  Every month it seems we're promised that we've turned the corner and soon it will be back to business as usual.  I don't believe it, I don't think things will ever return to the way they were.  This is more than just a hunch, I have two very real reasons for believing this: the debt and the price of oil.

I say the debt because I'm not just talking about anyone's personal debt, I'm talking about the accumulated debt that has built up in our economic/financial system.  Our financial system is built on debt, money is created by banks and governments loaning it into existence, so each year more money must be created or loaned into existence than the year before just to keep up with the interest payments.  The greater the amount the greater the interest payments.  As you can imagine sooner or later you hit a wall, which is exactly what has just happened and why are governments are desperately printing money (QE) to plug the gap.

And Oil?  Oil is the fuel for the whole system, but not just any oil, cheap high grade oil.  Don't get me wrong I'm not saying we're running out of oil, we've only gone through about half of our planets supply.  It's the cheap good stuff we're running out of.  A hundred years ago it took $1 of investment to get $100 worth of oil out of the ground ( EIOER, energy invested on energy returned), an amazing gift that allowed us all the advancements of the last century.  However by the 1970's this was down to 30/1 and now barely 17/1.  At a ratio of 10/1 oil becomes so expensive that our modern way of life, economic system ceases to operate.  What about fracking? Plenty of oil there only the average returns are about 3/1.  This is why the price of oil no longer drops much below $100 a barrel.  No cheap oil, no economic growth.

So, this is where i am, why I don't believe we're going back to normal anytime soon.  Everything I've written is a simplified summary of the information anyone can find on the net, so don't believe me, please look it up for yourself, it's not conspiracy theory, but verifiable facts.

David Keyworth