Gregor Macdonald: What the End of Cheap Oil Means

On the heels of Chris' recent report clarifying the global net energy predicament, he and contributing editor Gregor Macdonald sit down to talk in depth about the broken relationship between energy costs and economic growth.

For much of the twentieth century, the developed world saw a steady march upwards in wages and living standards, due primarily to huge quantities of cheap, high-yielding liquid hydrocarbon. As we find ourselves bumping along the plateau of Peak Oil's apex, suddenly we find that "growth" is a lot harder to come by.

Of course, if you follow the news today, this is not the story you are hearing. Talk of an energy bonanza and imminent energy independence (in the U.S.) are everywhere, thanks to gas fracking and tight oil production. What is missing from the headlines is the cost side of the equation and a blindness towards future demand. 

For certain, shale gas will be a boon for the U.S. and some other countries. But very little is transported these days by gas, and there are no mega-sized infrastructure projects underway to change that anytime soon. Extraction of new tight oil plays is increasing production, but not by enough to offset other field declines elsewhere in the world, and not at the prices we were used to over the past century. The era of cheap oil is over, and these higher permanent prices act as a boot on the throat of economic growth. Hence the mired global economy we have been experiencing in recent years.

Rather than fooling ourselves with fanciful "energy independence" pablum, we should be looking hard at what kind of future we want to have now that oil is no longer cheap. And we should be asking ourselves in regards to the remaining fossil fuels we're extracting: How can we put these non-renewable BTUs to their best use, before they become expensive, too?

I think the main conversation we are not having is that wages are very unlikely to ever return to a relationship to energy costs that would make the United States economy into a happy economic story once again. In other words, this whole idea that we will restore that unique relationship of high wages and low energy prices -- that is what we are not dealing with. So by telling ourselves the story that we are producing more energy, you can clearly see the cultural impulse there. The cultural impulse is there is to suggest "See? There is a chance, there is a chance we can get the energy cost down again and then there is a chance that that wages will come up again. That relationship got very skewed and kicked into a nasty bad place over the past decade. That is very much a way of thinking about what our economic story is, why we had the crisis, and why this supposed emergence from the crisis that we have been plodding our way through the past several years, why it feels so dis-satisfactory, why it feels so insufficient in many respects. 

This goes back to the Industrial Revolution. What caused a revolution in British wages? The appearance of coal in the British economy. Why is that? Because not only did you have human workers making stuff, but also, now you had coal helping you make stuff. Coal was the slave labor that you did not have to feed or shelter or clothe or house. And you could get coal to work for you and you could work for you, and you put it all together and it becomes high wages, and you get to pocket those high wages.

So this is the dream that we once enjoyed, here in the States with our cheap oil and our high wages. And since oil became less cheap, the wages have stagnated, and I just do not see how we are ever going to get back to that relationship again. Maybe we will talk about this; I do have some hope that we could stabilize the relationship in a future world, which is more weighted towards the power grid in which some manufacturing returns to the United States. But I think the main thing is – you asked the question, what is the main thing we are avoiding? We are avoiding the very painful prospect  – likelihood – that we will not be able to return to high wages, low prices, cheap energy.

As you point out, one of the cruel things that we left in the wake of our higher rate of growth and our cheap energy era and our high wage era was the debt. We left a tremendous amount of debt. Of course there is the public debt, but I really think what has been governing the economy in the post-crisis era has been the intractable nature of the private debt. We have both done work on charting the course of the private debt and I am sure we would agree that there has been some deleveraging that has occurred, but it is not nearly the amount of deleveraging that the media either thinks or wishes has occurred.

When you compare private debt levels to assets in the United States, yes, we are off the peak, but we are only back to 2006 levels. Most of the people I know were worried about debt levels in 2006. So to “deleverage” back to 2006 levels is not an achievement.

This promise of greater energy supply is obviously dangling out the prospect that somehow that will translate into cheaper prices and that the debt can be serviced and possible extinguished or deleveraged. But as we are finding the process is grindingly slow, and that is a big reason why the economy is grindingly slow and just does not seem to make much progress.

These things can work for a short period in the short term, and that is what we have been doing in the last five to seven years. We have been adding either expensive or marginal sources to the liquid fuel supply, as you know. This process can be thought of as one where the older more cheap oil is continually swapped out for the more expensive, unconventional, more expensive oil, and that makes for some sort of new risks when it comes to how the global economy may slow or speed up and what it may do to oil prices.

Because what I think we are going to find, especially in resource plays like the tight oil resource plays: if price goes below what it is costing these companies to extract this oil, it is actually going to be quite easy for these companies to simply stop drilling; to just stop adding additional wells. Because if you look at the actual mechanics by which wells are currently being added, they are added on a highly discretionary basis. They go in, they produce a lot of oil for a short period of time, and then they go into steep decline.

I think what people do not understand is that the Bakken is not like a traditional oil field where you are developing the whole field at one time; you are really just sticking little pin pricks into the topography of the western Dakotas. It is not like a tar sands operation, in which you sink all of the steel in the ground first over a five- to six-year engineering project and then you try to get paid back for the steel that you sunk in the ground. This is more of an inch-by-inch incremental project in the Bakken.

So what it looks to me is if price goes below sufficient levels – and I currently put that if price goes below $80-$75 a barrel for any length of time – we will just lose supply much more quickly. I just do not think the market or the economy or Wall Street has gotten its head around the fact that a good chunk of our supply now is ready to go offline at the moment that price drops. And that is probably why price has been so sustainably high, because the global futures market for oil realizes that oil that you see now costs a lot more so it is not going to willing to sell you oil two years from now at $70 or $75 a barrel. It knows that the only way that $70 or $75 a barrel oil is available two years from now is if we are back into a deep recession. I mean a deep recession.

Click the play button below to listen to Chris' interview with Gregor Macdonald (48m:43s):

This is a companion discussion topic for the original entry at


[quote=Chris Martenson]

But to lump [hydrocarbons together is like having] batteries and ice cream in your house and just say this is how many calories I have in my house.



Gregor mentions wages never being able to return to the high levels they reached in relation to energy costs. IMO, this is something that really needs to be understood, especially in states like California, where I live.
As I investigated other communities that might be a bit more rural than where I currently live, I noticed that the largest employer in each city that I investigated was either the local school district, the military, or the city government itself.

Realizing that such a large percentage of the population are not relying on free market forces, helps explain why we are broke/broken. They have come to expect contracts that give them wages and benefits that refect the cheap energy days. They are doing the same amount of work as they used to do, so they expect the wages and benefits to continue to grow as they have become accustomed.

Unfortunately, as Gregor points out, the real driver of the production that generated the real wealth in our economy was cheap energy. The government job-pay was temporarily sustained because the private sector managed to produce so much at such a low cost. As the price of oil bites into the economy, the private sector feels the effects immediately through less business to their store, or office, or trade, while the public sector, in general, keeps living the same life they always have. 
Eventually, the gap will be closed as the wealth of the private sector recalibrates and forces it's servants to quit living like kings, but it's going to be very messy, especially with so many living off the gravy train.


It seems to me that the overall mentality we are seeing similiar to a pinball machine mentality, with thoughts bouncing around between the first four stages of grief in a non-linerar fashion. The MSM does an admirable job of taking us into brief moods of denial, anger, bargaining and depression with their many conflicting examples of information and propaganda such as this new concept of energy independence. Since most people will be much more inclined to believe in a happy outcome than a negative one, these lies are not being challenged. Many people don't know what to believe anymore, and thus are not yet ready to move on to the final stage of acceptance, which will precipitate the behavioural changes that we so need to see. It will stay like this as long as people take what is being reported in the MSM at face value, and do not allow their curiosity to rise to the surface to question things for themselves.
Our transition out of our fossil fuel dependency is a painful loss that will not be easily overcome. I suspect the transition will be anything but in linear fashion, with plenty and anger and denial thrown in along the way. We are still a good distance away from final acceptance of the fact that what once was is no more.


…These BP and Harvard studies are misleading and counter productive. Saying natural gas liquids and implying they are gasoline is like saying salt water is fresh water. You can drink both but one makes you sick and you die, and the other gives you life.
The only thing I am truly confused about is that I know these reports came up with the right numbers but why they are fudging them to fit a mold is baffling.



Another thing to keep in mind about wages in the US is that from the beginning of the industrial revolution, capital has faced a labor shortage. We've lived on a continent with such vast resources in material and energy that it was possible to produce just about anything we desired at a low price even though real wages continued to rise in the face of massive immigration. That relationship ended in the 1970's. With the advent of the cheap computer in the form of the integrated circuit and the desire to outsource touch labor, Americans have had to work more, save less, and incur more debt just to stay more or less even in their standard of living. Now at the end of the cheap oil era, the increasing debt has come due and unpayable. It's not possible to work enough hours at current wage levels to recoup what is owed against the attempt to keep the living standard intact. And as labor is the source of all wealth, its lower value relative to energy has pretty much excluded borrow to grow as a viable strategy for capital accumulation. The fact that we have a capitalist system to produce wealth only makes the problem worse because those who own capital seek to valorize that capital for their own benefit. Enterprises that would benefit society as a whole are ignored in favor of profit centers. This goes hand in glove with capitalisms refusal to appropriately price risk. "Social unrest and degradation is someone else's problem," says the capitalist. There are plenty of things worth doing that would generate wages for workers, it's just that there is no profit in it.

If we as a society were interested in raising the material living standard, reducing violence, improving the standard of health, etc., there are some steps we could take in that direction. But almost by definition, they are not attractive to the capitalists as there is very little profit potential in them. Here's a short list:

1. Universal healthcare. By removing the profit incentive from medicine, it will be a lot cheaper to deliver healthcare to the masses of people. There will also be several added benefits. A healthier workforce is a more productive workforce. Removing the fear of financial disaster from seeking medical treatment will go a long way in reducing the overall stress level among those who can only marginally afford insurance now. Disease prevention can come to the fore. Under our current system, disease is how the system realizes a profit. There is no profit potential behind preventing disease. Universal healthcare also sends a message that you need not suffer in isolation. Society as a whole cares enough about you that you needn't suffer for lack of money.

2. Convert our ground transport system to electrified rail. Along with this would be a refitting of our infrastructure to make it compatible with rail transit. This world be a massive undertaking that could pay trillions of dollars in wages. The returns would be substantial. Reduced CO2 emissions, lower rates of transport fatalities, reduced stress during travel or commuting to work, lower costs per ton/mile, less suburban sprawl, lower costs per passenger mile. Unfortunately, a lot of our infrastructure is centered around automobile transit. There would have to be a lot of zoning changes and rethinking of how we arrange our city-scapes. That alone would guarantee plenty of jobs for decades to come. Of course, society as a whole benefits, not the individual investor.

3. Overhaul the industrial agricultural model toward a lower energy regime. Reduce chemical inputs and make agriculture more local. There would also have to be a greater demand for labor as fossil energy inputs decline. As the the fossil energy cost for agricultural products is driven lower, there might be dislocations among more agriculturally remote areas. Other models for growing food would become competitive, such as permaculture or local public and private gardens.

As Macdonald pointed out, high energy costs force lower growth rates, maybe we should take this as a good thing. It might be the forcing function that gets us off the treadmill of "borrow to grow". Instead of issuing debt, the system of finance could be transformed into a system of issuing value. Without the burden of profit and interest, there might be more for all. Instead of endless growth our goals might be geared more towards higher efficiency, less waste, equitable distribution, and happier people.

Well done interview, good discussion.  DurangoKid makes a lot of good points, but it seems clear to me at the moment that denial is still gripping the nation and most of the rest of the world.  As those in the transition movement make clear (and I agree with them) our quality of life can improve even as material standards subside.  The question is, how does this conversation get into the mainstream so that the myriad of solutions in the offing can be tried and fine tuned?  I have a feeling that by the time the discussion gets to  the mainstream and Washington the deal will have already been done, and the  population will have done the hard work on their own inspite of, not because of centralized political/media structures.
It seems to me that change always comes from the bottom up, from the fringes to the center. Our only hope is the creative imagination of ourselves and our local citizens sharing there own personal transitions till an alternative economy emerges with some sort of critical mass from the wreckage of the current mess.  As a result, my own preferce would be to see more effort focused not prognosticating how best to survive and prosper in the collapsing economy, but on how we practically build a new economoy step by step. How do we take this brilliant insight and interview to the next step.  Not just prepping to survive, but creating something new?  This is a subtle, but I think important distinction.

I am getting a feeling that the next turn of the crank is not far away and will be nastier than anything we have seen to date.

…you have this right. Yet, we haven't even begun. Amazing isn't it?We will have a labor shortage as we move forward because Oil will see to that.
Debt can't be serviced so will be defaulted, and this event must happen before we can move forward. I would imagine then that market forces will take hold and the lower wage will determine where housing costs finally settle. We have built many more millions of homes than is needed so housing is priced at the levels the lower wage can afford it. I still think we go when housing is finally settled. It hasn't.
With regards to an electrical and transportation build what is so great is it will be balanced through all corners of the economy and will benefit everyone. So why this isn't on the drawing board yet is a puzzle. Every politician should be in favor of something that would be a build in every part of their district. So again is confusing to me. 
Truly if anything is a build and they will come is electric and mass transportation. Then again if the narrative as was presented by BP and the Harvard study will only slow the process rather than start the planning process. 
Nice essay (D) Kid

Another thing to keep in mind about wages in the US is that from the beginning of the industrial revolution, capital has faced a labor shortage. We've lived on a continent with such vast resources in material and energy that it was possible to produce just about anything we desired at a low price even though real wages continued to rise in the face of massive immigration. That relationship ended in the 1970's. With the advent of the cheap computer in the form of the integrated circuit and the desire to outsource touch labor, Americans have had to work more, save less, and incur more debt just to stay more or less even in their standard of living. Now at the end of the cheap oil era, the increasing debt has come due and unpayable. It's not possible to work enough hours at current wage levels to recoup what is owed against the attempt to keep the living standard intact. And as labor is the source of all wealth, its lower value relative to energy has pretty much excluded borrow to grow as a viable strategy for capital accumulation. The fact that we have a capitalist system to produce wealth only makes the problem worse because those who own capital seek to valorize that capital for their own benefit. Enterprises that would benefit society as a whole are ignored in favor of profit centers. This goes hand in glove with capitalisms refusal to appropriately price risk. "Social unrest and degradation is someone else's problem," says the capitalist. There are plenty of things worth doing that would generate wages for workers, it's just that there is no profit in it.
Durango, you've pretty much given a small summary of Das Kapital (of couse there's a LOT more). Interestingly, most people haven't actually read Marx because they dismiss him as the architect of communism, when in fact it was actually Lenin. Marx had very little to say about what would come after the collapse of capitalism, but ge did give probably the most rigorous critique of capitalism ever. He saw what Smith and Ricardo couldn't see...that eventually the acquiring of resources and capital would eventually fall into the hands of a few large corporation (small ones being absorbed) and that the notion that the government would be a neutralizing force against this monopoly would be "wishful thinking." Marx saw value and wealth as energy, and the surplus "value" that wasn't paid to the actual worker was pocketed as "profit." What's amazing is how prophetic he really was in describing the booms and busts of business cycles, continual unemployment as the response to rising wages, and eventually what may be what we are predicting... collapse.  What I also see in Marx's writing that is possibly happening now is the coflict between the economic base or foundation and the superstructure that is supposed to mirror it and support it. The two are not mirroring each other and we may be experiencing the "shift"  (or collapse) to a new economic foundation.  Thank You

My favorite term “obfuscation by complexity” how many people are busy putting food on the table and dealing with the minutia of life so they scan the headlines. They are “fed a story composed by the headlines”. When I was growing up a lie by omission was still a lie or we would say they are trying to feed us pond slime.
Also liked “fallacy of composition” the way things are in our life or where we live are a certain way so it’s probably the same elsewhere. Unfortunately, it isn’t so, there are a lot of people suffering in far away places we just don’t pay attention.
Yeah, I feel so much better, you see Mr. & Mrs. Middle America isn’t dump we are just being fed a slimy green lie called “obfuscation by complexity”.
AK Granny

How does one remove the profit incentive from medicine?  I happen to have a perspective very different from the mainstream and from yours as well about "healthcare" but I'm interested in hearing your ideas.

The rich mans dog gets more in the way of vacinnation, medicine and medical care than do the workers upon whom the rich mans wealth is built.Samora Machel
I find that those who are pro profit in medicine often have not experienced living without insurance or have not lived with the fear that a medical crisis would/could mean financial ruin, bankruptcy and poverty. Have not watched a grown child refuse to go to the doctor or be denied medication due to lack of coverage. Perspective is relative, when we are able to walk in anothers path it can change. I applaud you for asking, I hope your perspective will be enriched.
AK Granny

…about as closely as you can (laymen) and, what is always lost between the two sides of this argument is the argument of when it will be the "Rule" of the day, and how we can quickly make adjustments. It will be from this realization moment that we will finally move towards a priority list of things that must get done first. So until this moment in time occurs we must wait as kicking the can down the road even further will just be the spineless response from our politicians (to be fair what option do they have). They too have to have cover and until Peak Oil is mainstream around the world they just won't do anything.
Erik T. in a recent thread does a nice job of taking everyone else's research and binding it together in a nice essay using the original thinkers (from both sides of the Pay wall) numbers, and to his credit he doesn't butcher the research or come too strong with his opinion. I don't always agree with his sudden and 'extreme pain' (relative to your pain tolerence) conclusions however, as I still believe we transition just a little slower on the down slide than is sometimes intimated (what do I know though, then again what do you?).

I can imagine that Chris is ever thankful for Erik's input here at PP because Erik is front and center with regards to so many issues. He's a foreign correspondent at FNH and does a commodities wrap up. In addition to having such adventures as world traveler extraordinaire, food critic, and his valiant attempts at military foreign policy reactions admitting himself that he is not an expert at anything. Like us, he is a laymen trying to figure things out. So, like everyone here at PP he is a valued contributor. We are all just trying to figure everything out. Some for financial gains and some to just survive or are just learning and researching, which is the greatness of this PP site. What I appreciate about PP is that the check books and bank accounts for the most part are left at home and we all are on the same page. Like baseball players on their respective teams. 

None of us are expert because the Data is incomplete in so many areas. I mean really, how can you put any numbers together without a full accounting of what Saudi Arabia has in the ground. How can you even predict with some certainty any numbers when the above ground issues are so skewed. For instance: If Iraq was running at normal levels and Iran and Nigeria then the supply side of the equation would be so much different.

If we used natural gas for our own consumption then this would absolutely effect near term prices of Oil. What the numbers do show is that production has not risen ever higher in spite of the high costs of Oil and that is a tell that we have hit a plateau. We also know that depletion every year is about 5% and so to stay even we must replace this lost depletion and it appears that we are (?). However, to get to 100 million barrels of Oil each and every day and it has never been done is just crazy thinking in a 15 to 20 year time frame.

Still, using some of Charles H. Smiths suggestions it can be managed but we should start now in managing this. It isn't solvable except "to get off Oil before it gets off us". I know this that we can conserve Oil at a far greater pace than we are with some simple low hanging fruit adjustments. 

I think the human spirit is such that we can manage what fuels are available and make better use without the system completely disintegrating. Charles H. Smith has many positive reactions to our plight and I think Charles is locked in too, and he doesn't get nearly enough credit for his outlook on the future. He does by me however because visually it is easy to see how right he is.

A little story: When I was a kid we walked and rode our bikes. I would cover all my needs for what was probably a 10 to 15 mile diameter of turf (mostly a mile or two in either direction). I just needed to get to three different play grounds to have days filled with nothing but playing ball. If I ventured further it was a 3 block walk to catch a bus to the downtown area and walk from my bus to the downtown area for shopping or other visual wonders. Many times I just walked from the bus stop to the ball park. The adults would do the same to get to their work places. They took a bus and 1 car was enough. I only drove in a car when we went to church (seldom drove there) and for the Sunday family drive. It is manageable Folks especially if you are making arrangements to live in a walkable community that has all your needs within easy transportation distances or access to main thorough fairs to go long distance to a ball game or downtown area. My point mainly is that a bus can take 50 or so Folks, on schedule, at an extreme savings to you using your car, gasoline, maintenance, insurance, etc…4 to a car is not the norm now but I still think it will go without a hitch if you have to walk or ride your bike to work especially when it rains, snows or is as cold as it is today in my part of the planet. Hell, the soccer Mom's have already made this adjustment in my neck of the woods. Every day I see a different Mom taking other Mom's kids to and fro school, practices and other functions. We will just transition nicely if given a relatively short amount of time to network. Leave it to Mom and get out of the way.

We'll eventually figure things out and having stores, and alternate and redundant systems has always been a good idea. Chris talks Resilience and Preparations and I absolutely agree with this basic concept.



It is difficult to see a labor shortage developing in the future irrespective of the level of production of fossil fuels so long as those sources of energy are replaced.  I premise this statement on the compounding of knowledge and the consequent rapid growth in the capabilities of robots.  Furthermore, the intermediate technology of 3D printing is evolving at breakneck speed, and will before long enable the production of many items without leaving the home.This labor-reduction track is complemented by the continued growth in global population.  While there may be a blip in time where there are localized labor shortages as individual societies catch up to the 21st century, the very act of catching up will make labor redundant.  Labor shortages are hard to envision absent either a population crash or an energy crash.  There's no indication that either will happen and there certainly will be no knowledge crash nor will we suddenly develop a craving for high labor input products at higher prices to functionally and aesthetically better products made by our robot slaves or our software-driven replicators.
We need a new model for the distribution of wealth and physical products, a model that more closely maps to the distribution of knowledge for in the future wealth and physical products will become increasingly the concretization of knowledge and not of labor.
Communism is dead. Capitalism is moribund.  A new system will arise or we will enter a new Dark Age.

Theres nothing wrong with capitalism…its the best, and only way for a buyer and seller to leave a transaction happy and content.  The issue is inflation - a fractional reserve system relying on credit and money printing is the root of whats wrong.  A balanced budget doesn't allow for example - boomers/silents to take from the now and send the bill to the future.  You need what you need and wants are just that.  A barter enconomy is a notch above lawlessness.  Add a unit of exchange and you've got capitalism.  Isn't it odd the same year the federal reserve was created (a private bank though I'm sure you know…) the federal income tax was established?

Excellent presentaion by Grego and Chris giving the link between energy, the economy, and production and wages(labor). What I rarely see mentioned is the latest ominous portent out there in the aligator pit:Robotic labor. The sequence as laid out by Gregor was hand labor to energy assisted labor, but labor still done by hands. The next obvious step in the chain that Marx commented on was concentration of wealth into fewer and fewer hands…and eventually NO HANDS. Robots have the potential to accelerate that change. Until I researched how widespread robotic labor(AKA machine slave labor) has become, I did not see the negative potential to our society. I covered this subject in a recent blog and I hope Chris and Gregor and some of the extremely bright folks who have commented here will look at this final chapter of "Whatever happened to the jobs? and why aren't they coming back?". The jobs are starting to come back as slave labor jobs. My energy blog raises this issue at length.

…stands to reason that we rely on labor as an energy source in the future. I get the robotics thing too but a problem solving physical force can only gain momentum also are just a thought. Time will tell.
Right now I am focused on the economy as that appears next up on our troubled radar screen. Take a look:

If fundamentals ever matter any more then these two reports are arguments that something is NOT right yet the market keeps trudging upward. It did in 2008 until it didn't.




[quote=RJE]Right now I am focused on the economy as that appears next up on our troubled radar screen. Take a look:
Hussman provided the chart below. Note that from 1983 to late 1985, oil prices were about the same as the present price in 2012 dollars, but the S&P more than doubled during this period. That suggests to me that it is not oil prices that are slowing the economy. When Saudi Arabia gave up on curtailing production to support the high oil price, it collapse to about the equivalent of a present $40 per barrel. That did contribute to to the continued rise of the S&P into the late 90s.

…today's economy, and wages are contracting with unemployment and gamesmanship by business owners with the hours worked per laborer to manage the benefits paid to laborers. Oil today is most certainly having an effect on discretionary spending and ability to pay other bills. I think in some measure that the avoidance of paying ones mortgage (that is under water and not an investment positive) or the long process of actually evicting homeowners from their homes is playing an important role in our economy staying afloat (bankers playing games to prop the mortgage price as their being propped by the Fed). I think with this next Recession, and Mr. Hussman believes we are in one since June that housing and employment are due to take another hit, and more Folks will initiate the process to foreclose and bankrupt their debts that comparing this to the 82-85 period are two different data driven circumstances. It's not like money is sloshing about as M2 money is falling as the consumer and business hoard their cash because no one is really in need of any more credit. Capex is at best not happening, and bankers more restrictive. Growth itself is a fading reality as Oil will see to that so what event finally triggers a massive Deflationary correction? The consumer is getting slammed, wages are falling, facing higher food and energy costs and higher taxes for the medical entitlements, higher Soc. Sec tax as that bit of stimulus has ended, and bailing out our countries own maxed out credit cards.I am NOT an economist, and most all my thoughts are because of conclusion made reading the Hussman's, Martenson's, Mish's, Smith's, Janjuah's, Grantham's, Chanos, and the like. 
If you pile on more debt to my own debt ridden household balance sheet then the least resistant and less painful solution is to just bankrupt all of this away, work with the banks on mitigating a new mortgage payment that is hundreds of dollars a month from your mortgage payment and lose nothing. Never pay that second mortgage as they will not get those funds. I believe that option is being considered by more and more Folks who realize they can live their lives with less stress and halve their costs to maintain their family and some semblance of their standard of living. I know what used to be considered a moral issue is now easily rationalized away as the bankers and the Fed have shown it no longer is an issue. Eat or be eaten is the game now.
I think these time are more 1929 until 1945 than 82-85 is my real short answer. Desperate times call for desperate measures. I think we live in desperate times.
Respectfully Given

Bob, I agree. I think more and more people will take the bankruptcy route as their real wages contine to fall. I'm not sure it's full-on desperation yet, but it sure isn't looking good for the future. Interestingly, the hedgefunds have been buying up large amounts of homes in the past four years basically forecasting a boom in the rental market. I have been hearing from many friends in NYC that are renting that there is a lot of activity in the rental market right now. Many tenants are being given noticed with the owner's explanation being that "I can't afford to subsidize you anymore." I also agree that growth is fading in real terms and leveraged value in the financial sector is fueling what's left. It will be interesting to see how this shakes out. I'm with you, nobody knows, and capitalism is all good and wonderful as long as some part of the economy is forever growing (Hansen back in the late 60s turned the population argument on its head in defense of "mature" capitalism) but more and more the only thing that's left is the forever-growing money supply.
Thank You