Kurt Cobb: Money Cannot Manufacture Resources

Author Kurt Cobb writes frequently on energy and the environment and warns that our current economic policy suffers from a fatal degree of magical thinking: sufficient new resources will emerge if the price is high enough.

As any fourth grader will tell you, a finite system will not yield unlimited resources. But that perspective is not shared by those controlling the printing presses. And so they print and print and print, yet remain flummoxed when supply (and increasingly, demand for that matter) does not increase the way they expect.

Is this any way to run an economy? Or a finite planet for that matter?

Of course, a lot of people have been hearing the hype about the growth in production in the United States for crude oil. That has been happening, but it has been happening with very high cost oil. Now the prices are down and the industry is on its back. They are looking for ways to increase the amount of money they can get for that crude oil. One of those would be to sell this light tight oil, which is oversupplied in the United States to foreign refineries. They cannot do it because of the export ban. I am not sure that is going to help them much because the price of oil has gone down so low as compared to what their costs are.

We have already seen a decline in U.S. output. The prognostication that we were going to be energy independent in oil, and that we were going to become the largest provider of oil to the world, I do not think are going to work out. It shows us that high priced oil leads to low priced oil, which also leads to economic slowdown. That is what we are seeing now. That is the equation that you and I wonder how people do not see that these things are connected, and yet they do not.

I think you put your finger on it: people who run our central banks and run our government policy think that money manufactures resources. If we just put enough money out there, it will call forth the resources. There is a little bit of truth to that, because very cheap finance made it possible for us to lift this $100 barrel oil out of the shale formations of North Dakota, Texas, and other places. That is not endless, and the high price puts pressure on the economy. I think this is where we are going to have problems.

We cannot sustain those high prices in the long run. We have structured an economy for cheap energy and that is not what we have. It has resulted in a slowdown that I think is the beginning of that transformation from a high growth economy to a low growth economy. In fact, we probably already began that in 2008. 

Click the play button below to listen to Chris' interview with Kurt Cobb (47m:42s)

This is a companion discussion topic for the original entry at https://peakprosperity.com/kurt-cobb-money-cannot-manufacture-resources/

That means we are going to have to find some other sources of energy or import a lot more oil, and you and I both think it is going to be troublesome to be trying to import more oil. You had Jeffrey Brown on recently and I think he has explained very well why it is going to be very difficult for us to find that oil in the international markets. It is not going to be there.
What…they will find the oil somewhere cause we are all planning on "Happy Motoring to Wal Mart" forever!


It tells me that there are limits, even for national oil companies, for whatever reason. I am inclined to think that we are going to see falls in worldwide production of oil in two, three, or four years. That is going to be shocking, and that is going to be jarring for the economy and for policymakers.

What… Another failure of "imagination"???

It isn't the probability of running out of oil you all should be concerned about its the consequence for you and your family if you do.

My family survived a 9.4 earthquake that lasted almost 5 minutes, what's the probability of being in a quake like that?  Pretty low I expect, the consequence - we were prepared, that made a big difference.  The point is be prepared for the unexpected and gosh an oil shortage shouldn't be unexpected! Use your imagination.


There's certainly a future 'accident' coming over oil supplies.
The fiction that Iraq was going to be able to rapidly swell its production has fallen away for all but the most deluded analysts.

And then there's this:

Plunging oil prices put question mark over $1.5tn of projects

Sept 21, 2015

Plunging oil prices have rendered more than a trillion dollars of future spending on energy projects uneconomic, according to a study that suggests that the impact on industry operators is worsening.

A report published Monday says $1.5tn of potential investment globally — including in North America’s shale-producing heartlands — is “out of the money” at current oil prices close to $50 a barrel and unlikely to go ahead.

Industry operators expect capital spending on new projects to decline by between 20 and 30 per cent on average in the wake of the price slide, says Wood Mackenzie, the energy consultancy.

It calculates that $220bn of investment has been cut so far, about $20bn more than it estimated two months ago and much of it the result of projects being deferred. Such a decline in spending means that the price crash since last summer — the result of weaker Chinese demand, record US production and Saudi Arabia’s decision not to cut output — could resemble the savage downturn of the mid-1980s.

Just half a dozen new projects will be approved this year, says the Wood Mac report, and 10 or 11 in 2016, compared with an annual average of 50 to 60.


New projects have been slashed to just 10% of the normal volume ("a half dozen" divided by "50 to 60"). These new projects are essential to counter declines in existing production.

Set your calendars…in a couple of years there will be vast oil shortages,…  unless there’s an economic collapse so great that oil demand gets slashed at an equal or faster pace.

But recovering then? In the aftermath of all that with either a destroyed economy and/or insufficient oil supplies? This is where the holders of that $200 trillion in global debt, and $60 trillion of global equities had better sharpen their pencils and ask some tough questions…


Another cogent interview - well done,Chris. I think it highlights everything most of your podcast interviews suggest. A finite world will limit options. Our old buddy, Justus von Liebig figured it out over 150 years ago.
Most of your listeners are aware of the denial issue and have embraced its reality. So, what are we to do about it? When's the best time to plant a tree? 20 years ago! Best mining device nature ever came up with.

If we are to have an impact on the future and the lives of our children and grand children, start now and get yourself rooted (no pun intended) in the soil. No matter how small that involvement may be, it sends a message to your neighbors, kids and society in general that there is a solution. It won't happen overnight, but it is certainly more productive than bitching about it! Need potatoes? My 16 X 30 ft patch produced just under 400 lbs. Need any? E.F. Schmacher? Start small and share it with your neighbor.


What's remarkable is the incredible power of the desire to believe a technical solution will arise to solve all this painlessly. I admire Jeremy Rifkin's "outside the box" thinking on work, education, etc., but his latest book (which has sold well globally, from what I gather) forecasts that electricity will soon be abundant to the point of being essentially free, due to the wonders of electricity-generating roofing, siding, paint, etc.
Uh, right. So where do all these materials come from, and who pays for the labor to install all this stuff when the yield is near-zero?  Many people are nostalgic for the Make Work projects of the 1930s–let's just have the federal govt. install electricity-producing roofing and panels on every structure in America.

A great many people are offended by suggestions that these proposals are impractical.  I am not sure what exotic materials are in electricity-producing paint, but I suspect they're some form of "artificial photosynthesis" that is based on nano-technologies that are currently on the workbench.

If they scale, if they use cheap materials such as silicon, if they last through bad winters, if we develop cheap storage for the surplus to use at night and if we can rewire the entire nation with a million new collection systems–hey, it works! It will pay for itself somehow despite lowering the cost of electricity to near-zero.

I am all for deploying new passive collection of solar, tidal, wind etc.energy, but few look at the scale of our energy use. I would love the federal govt. to provide me with a new electric car (that magically didn't use unsustainable lithium-ion batteries) for "free" (hey, just print the money!) and recharge it by putting a coat of magic paint on my house, but the scale of all this is completely off. the magic paint might recharge 2 AA batteries or a mobile phone, not an energy-hungry vehicle.

There's a great new technology that magically improves health while providing transport. It's called a bicycle. Top labs are working on it right now…

Yesterday I had a good conversation with a local architect who has been very proactive in rebuilding our older more urban city center over his career.  I asked when he thought the idea of walkable communities would really catch on and he said it would start at the point when driving becomes too expensive. The examples he gave were $12/gal gas &/or special monthly permits to drive into dense areas. 
As I have now had some sleep and time to digest his ideas I see unintended consequences for both these ideas.  On the high priced fuel front, this would also slow the economy and cause many consequences with our poor in this city, probably resulting is rising personal crime and theft. This would make the city center less safe.  The special driving permit idea would likely result in jobs migrating out of the city center as the cost of doing business escalates. Right now, most of our current building and infrastructure improvement is supporting the old paradigm. For a city guy this ain't easy folks.

Somewhere between dense cities with lots of energy needs and sprawling suburbs with lots of energy needs is a sweet spot of density and intentional living.  Building and zoning codes need to be changed. Old useless infrastructure removed to make way for more efficient systems.  Are there any city planner/ designer gurus that could come on for a discussion on the practical side of dealing with this in the future?  Maybe a guest + Chris + John Michael Greer or Jim Kuntsler playing devil's advocate to keep the conversation going deeper into what is possible.  Any reading suggestions on this from a hands on approach dealing with changing local vision/ local codes etc would be great.


And in a sense Kunstler is right - it is too late.
We should have started large-scale "intentional living" [to use aggrivated's phrase] in the 1970's, or earlier. We should not have built the suburbs, the cul-de-sacs, the freeways, etc.

People are turned off by Kunstler because he's chosen to be a truth teller. There will be consequences for our tremendous misallocation of resources. And few people can accept it.   I

Go ahead and be positive. Reduce your own fossil fuel consumption first (many of us are making some kind of an attempt at it). But once you become energy-conscious you'll likely be less popular. People will get angry at you and think you're a kook for turning off lights in empty rooms. You'll be going against the grain.


This is a monthly commodity price index for 8 different commodity prices, with 2000=100.  So since gold = 398 right now, it is up almost 400% in the last 15 years.
Notice: gold is outperforming everything else.

Correlations between commodities isn't perfect, but they certainly do move more or less together, and they've all done nothing but drop since China slowed down its credit growth in 2011.  And silver seems to be at the center of the pack.

When will prices all start to turn up again?  Once we all understand where things are going, we have this concept that it will happen overnight (I sure did anyway) and when it doesn't, we wonder what might have gone wrong.  I could see an economic downturn that rips the guts out of demand, which will mean commodity prices could remain low until that cycle completes, thus destroying all the "peak oil" folks (like me) who know where this has to end up eventually, but get blown up along the way because we're too early and we didn't factor in a massively deflationary debt bubble pop.

Well, that's one outcome anyway.  Will "QE for the People" change this?

I have thought a good deal about microcities, and even lived in one (Silute, Lithuania) for a few years. I’d think this would be a good new forum, but city design is pointless without having assets to commit.

In a real sense I have spent the last 25 years in a microcity within a huge suburban city.  I walk to work and worship, my kids walked to school (both ways on level ground) and I can walk to the grocery, bank and doctor if I take the time to do errands that way.  The concerns I posted above are based on a growing sense that this place works because the well being of a large part of this city depends on government support. For instance, I walk through an area of about 800 apartments that are all section 8.  What happens when the funds dry up?  The more we discuss on this site the future with less energy and a reduced or collapsed economy, the more I get the feeling that the walls of my castle are weak to non existent.  No wonder people hide in walled HOA enclaves.
Living in community includes coexisting with a lot of different folks, but it won't take a very large group of homeless, hungry to make any of our cities, or our small towns very different places to live.  Chris is right I think when he says, "Set your calendars…in a couple of years there will be vast oil shortages,…  unless there’s an economic collapse so great that oil demand gets slashed at an equal or faster pace." 

As a young person I remember living through the shortages of the 1970's, but our government wasn't held up by the Hindenburg bubble back then.  Most of our communities, both urban and rural rely so much more now on the Hindenburg staying in the air and not going up in flames.  Even AkGrannyWGrit will be facing a different scenario with neighbors when the bubble pops.   How many of us have human capital sufficient to weather this storm that is on the horizon?  In some ways, I would rather face 200 hungry in a rural setting than 20,000 in an urban one.  But then rural life is next to impossible to do well in a walking community.  Thoughts, Comments?

Aggravated, in my opinion there is no single, right preparation.  None of us know the future which makes some of our choices more difficult. However, reducing our dependency on the just-in-time shopping centers will make life more tolerable in an emergency and in our every day activities as well.  Here are a few suggestions I have to help people prepare for a precarious future with less.

  • Do you have the skill to re-use, re-purpose and re-make items. Creativity and ingenuity will be a valuable skill. Tools are an asset!
  • Are you aware of your surroundings, can you spot the perpetrator who is scoping out your neighborhood and have you taught your children this skill? Learn to people watch and learn body language.
  • Do have the skills to grow food, give first aid, food preservation, homeopathic medicine and urban farming?
  • Can you tolerate being cold, hungry, uncomfortable, anxious and sad.  Many people today can't fathom the idea that life can be anything but pleasant, easy and happy.  Those with grit will survive.  There is a saying up here in Alaska, it's where "The Strong Stumble and The Weak Die". Get into shape, figure out how you will take care of your family during an emergency and don't look for an "Easy Button" there isn't one.  
  • Be different, prepare different, think different, because main stream Mr. And Mrs. Middle Class are in for a rude awakening some day. Don't wait for confirmation from someone else get busy today.
  • There is a lot of help and resource info on this site, just go to the "Prepare" tab and dig in.
  • Do or do not - stop thinking about preparing, when your kids look you in the eye and say "what are we going to do?" Will you have a good answer, will you have prepared for them or will you watch them be miserable?
  • I guess the "right" preparation would be to do the best you can for your family to prepare for an emergency with the time, money and resources you have at your disposal. To not prepare for ones family is, in my opinion, selfish and foolish.

Hi Aggrivated and AKGranny,
Good questions. Each of us periodically pauses and looks at our situation and measures it up against what we imagine could happen.  It is a work in progress.

Though my own crystal ball is in the shop for repairs, we have are our imaginations, stories, and basic principles (like "a person must have water").  I imagine that the shrinking economic pie will lead to international conflict. I'll vote for an EMP, cyber attacks or a catastrophic disruption of the global oil distribution network at some point.  :slight_smile:

Basic living situation:  What makes most sense for me is a town with surrounding farmland.  This combines walk-ability (and bicycle-ability, horse-ability) and enough local people to form your "team."  Surrounding farms have livestock and crops growing in the fields nearby.  Without trucking, everyone will eat locally, all the time.

Adequate rainfall.  If no water is coming through the tap, how will you get your water for bathing, drinking, washing clothes?  If you are not on a river or dependable year round stream, then you'll need a well (expensive!) or rainwater collection and storage systems (reasonable price if you have the rainfall.)

Shelter from the elements:  a house, firewood, wood burning stove during the winter.  Summer shade, airflow (fan?), the ability to cool off in a shower, swimming pool or bath.

For me, the most difficult is the potential for radical changes in human relationships.  We need enough people, but not too many.  And all the rules will be different.

Sudden transformation of social organization to more primitive structures seems likely as we are knocked down Maslow's hierarchy.  Many predict this. For example, a person who feels that they should have the right to chose who they have sexual relationships with may have to defend that right themselves.  (Society will not offer that protection.)  Similarly, property rights might have to be scaled back to what can be defended and controlled by your team.

I had a pet cat that grew up in a our home with several other cats, dogs (and two white rats) where all the people and animals could be found lounging together on the sofa.  We were one big inter-specie happy family.  One day, a neighbor's dog saw our cat in our yard and tore across the street biting her by the neck killing her instantly.  She just did not realize that the rules of relationship with the neighbor's dog were completely different than with the dogs at our house.  This was heartbreaking for our family. But we talked about how this works with the kids and tried to learn from it.  Similarly, the pages of post- apocalyptic novels are littered with the bodies of those who couldn't catch on quickly enough to the changed rules.

Relationship with the unprepared.  Jeremy's Run:  LA Dark, is a sudden, total collapse story set in one of the most unsustainable places on earth, Los Angeles.  Overwhelming numbers of unprepared caused utter chaos.

In contrast, it seems to me, that in a small suburban neighborhood, a few unprepared neighbors can be recruited and integrated into a well prepared persons "team" as allies.  "I'll share some rice and beans with you and help you till your front lawn into a garden plot if you will help me chop and stack firewood."  The limitation to team recruitment seems to me to be how much survival food you have stored.

Relationship with the entitled:  Get rid of them immediately.  They will become enraged when you fail to give them "their fair share" of your food and they will take it by force in righteous indignation.

Recognizing that others may have chosen a different path than you.  We might think something like "I would never do that!" or "I chose the path of love (reason, civilization) and will not condone violence."   Just be aware that others will chose differently.  Killing a home owner and moving into their home is an adaptation pattern tested in nature.  I cannot image this would not be a common pattern among humans should a high level collapse materialize.

Aggrivated asked:

The concerns I posted above are based on a growing sense that this place works because the well being of a large part of this city depends on government support. For instance, I walk through an area of about 800 apartments that are all section 8.  What happens when the funds dry up?  The more we discuss on this site the future with less energy and a reduced or collapsed economy, the more I get the feeling that the walls of my castle are weak to non existent.
Any large block of apartments where the occupants did not have adequate food, water and heat sounds like a very dangerous place.

So there are my, perhaps, overly vivid morning thoughts on preparation.  :slight_smile:







Best preparation you can do is to mentally prepare yourself for anything and everything. As much as you can. And then try not to take it all too seriously :wink:

Money cannot manufacture resources, of course!
People can turn coal into oil by lignification technologies. People can also turn hydrocarbons to gasoline or natural gas as Japan demonstrated turning giant seaweed into nature gas. Of course, you need to input energy. It doesn't make sense to burn 2 gallon of gas to get 1 gallon. However, if you use nuke, it turns good. Use energy generated from nuclear reactors to turn haydrocarbon into usable fuel is feasible and commercially viable as long as crude oil price is above certain level. As I read, disqualification of coal is cheaper than most US shale gas.

China is working hard on nuclear energy and coal liquidification. US should take note and do more R&D on nuke energy. 


C H Smith: "So where do all these materials come from,"
Um, maybe the same place that existing siding, paint, etc., came from? Or are we at Peak Paint and Peak Siding, too?

Smith: "and who pays for the labor to install all this stuff when the yield is near-zero?"

Rifken is surely not suggesting unpaid labor. When he talks about cheap or free energy he is no doubt talking about the marginal cost of energy, not about the initial build-out, ongoing build-out and maintenance. A device delivering free energy still must be built, hence the energy is not truly free – only free (no marginal cost) after the initial investment. Or, if you prefer, you could call it "very high EROEI".

I have not read Rifkin's book and I am not defending his thesis. I'm only saying that your arguments against it are full of holes.

Smith: "Many people are nostalgic for the Make Work projects of the 1930s–let's just have the federal govt. install electricity-producing roofing and panels on every structure in America."

"Make work"? "MAKE WORK"?!  What a horridly inappropriate way to describe the wonderful infrastructure projects of the 1930s. The entire country is peppered with roads, bridges, parks, schools, and numerous other structures built by these programs – still very much in use after all these years. "Make work" projects are by definition just busy-work of no value, something to keep the idle occupied – but that is a vile and shameful way to refer to highly-successful programs that built vast infrastructure that the country badly needed. The same thing is desperately needed today, what with the country's crumbling infrastructure.

So yes, we – intelligent and realistic people – are very much "nostalgic" for the programs of the 1930s. Aren't you? If you are not, then what do YOU suggest for dealing with the country's infrastructure crisis?  And by "crisis" I refer just to maintenance of existing structure.  There is another (and almost as large) desperate need for a crash renewable energy build-out, and by "renewable energy" I'm talking proven and highly-scalable, highly-cost-effective technologies that are being built out as we speak, no pie in the sky. Yes, absolutely the federal government should be involved in this, not because it can't or won't happen eventually anyway for economic reasons, (indeed it IS happening), but because for the sake of the climate it must happen faster than it would happen organically.

Sorry, Charles, but this reply of yours does not reflect your usual intelligence and insight.

PS: If you want to criticize the fedgov programs of the 1930s, you have firm  human rights ground to stand on. Those programs underpaid workers and violated their rights. My words of defense, above, were addressing your "make work" slur – a shameful lie. Those programs were highly successful in accomplishing needed things. The WAY they did it, however, stands to be criticized, and I am more than open to that.


The last few minutes of the discussion were very important. I agree that scientism has become a new religion. Scientists like Newton became the stars of the enlightenment, but they seldom felt their knowledge would replace religion. In fact many thought it bolstered their faith. Over the past century, as technology has progressed, many people have misinterpreted this as a sign of understanding. The opposite has happened. For every questioned "answered" ten new questions pop up. Any true scientist would affirm that there is a great mystery in how things work, especially the human body. The question I have is: how do we relate that to the next generation? I attempt to do so as I practice medicine. My patients are often dismayed to find that no knows the answer to their questions. I often remind them that they are not machines and cannot be fixed as such. It is imperative that we respect the environment as it is equally complex and will have a profound effect on our health. We need to stop our faith in scientism and its false promises.