Registered Investment Adviser Caleb Lawrence
The major averages struggled into the final hour with small losses on little real news, though the drums of war beat louder, and consumer credit comes out after the close today.
The primary cause of the Great Financial Crisis of 2007-2009 is generally regarded as too much debt and not enough income, problems that continue to this day. At least if you’re not a mainstream economist or central banker with a debt doesn’t matter agenda. Another possible cause and also contributing factor to the moribund economic growth in the post bust period is Energy Return on Investment or EROI. In a nutshell EROI represents the amount of net energy received after deducting exploration, recovery, refining and transport costs. Based on a groundbreaking recent study in Elsevier’s Ecological Economics Journal by a couple of French economists. The golden age of cheap fossil fuel that was easy to get and refine ended in the early70’s for Natural Gas, Oil, and, Coal on a global basis. At the current rate of decline we are expected to revisit the 1800’s EROI by the end of this century. Given the energy intensive nature of modern economies it doesn’t take a particularly gifted person to realize, particularly from a historical perspective, that economic dynasties and empires require cheap abundant energy to manifest. Put another way and steadily rising economic input costs or energy in this case, means declining marginal returns on economic growth. Fracking may have bought us a little time at best, but if advances in renewable energy technology can’t solve the declining EROI conundrum going forward economic growth will be forced lower absent some new technological paradigm.