Sunday, December 8, 2013

Oil-dependent economy driving on the the fumes of debt

Diminishing Returns, Energy Return on Energy Invested, and Collapse | Our Finite World: "The situation we are facing now is different. High oil prices–even in the $100 barrel range–tend to push the economy toward contraction, making debt hard to pay back. (This happens because we are borrowing from the future, and the amount available to repay debt in the future will be less rather than more.) The problem can be temporarily covered up with deficit spending and Quantitative Easing, but is not a long-term solution. If interest rates rise, there is likely to be a large increase in debt defaults.

...Stagnation of wages is happening despite attempts by governments to prop up the economy using deficit spending, artificially low interest rates, and Quantitative Easing. Without these interventions, the results would likely be even worse. If QE is removed, or if interest rates rise on their own, there seems to be a distinct possibility that these countries will be reaching the “crisis” phase as described by Turchin and Nefedov."

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