by Chris Martenson, Peak Prosperity:

Why hard assets are so important given the current state of global markets

It’s very easy to get sucked into the mini dramas playing out across our digital screens.

Trump Tweeted this while the stock market did that. Uh oh! Somebody’s experiencing something awful, or having a stroke of great fortune. Hey, look: Kittens!

Watching CNN often feels like the inept product of a university committee that sought to create a program of sensitivity training for adult sufferers of acute ADHD. After just five minutes you know what it’s like to be trapped in a brain that’s distracted part way through every thought pattern and cannot maintain enough attention to form a coherent sequitur.

However, if we set these entirely useless distractions aside it’s quite apparent that something big is going on. And it’s not positive.

It’s a complex story with lots of moving pieces and it takes a bit of effort to puzzle it all out, but more and more people are arriving at the same conclusion; something is going to break.

To resolve the dots into a coherent picture, we need to take two giant steps back and take in the whole canvas.

The cliff notes version is this: The numbers just don’t add up.

Big changes are underway. Specifically, the unsustainable cogs in the global economy are slowly grinding to a halt.

Giant Step #1: Growth

The age of unrestricted growth is over. It was a good run. But now we’ve got to live within certain ecological and resource budgets which means we’ve also got to live within some fiscal and economic budgets.

Virtually nobody in power wants to do either. Maybe a few here and there, most of them recently retired or close to it. The remainder all want business-as-usual (BAU) to continue, especially those that just hooked a finger around the brass ring of success.

The big problem with BAU is that it’s a broken model without a future. Economic growth was the solution to every problem. Now it is the problem.

Worst of all, it’s not just growth we’ve become addicted to, but exponential growth. For a quick and powerful review of this vital concept, please watch this video. It’s less than 5 minutes. Fair warning, you might not be the same afterwards:

There are a hundred exponential charts we could discuss, and they are all important in their own right, but there’s one that stands far above them all.

It’s so prevalent in your life that you probably take it for granted and might not appreciate all that it provides. You are the fish and it is the water.

Here it is:

(Source)

Fossil fuel energy is responsible for providing every creature comfort and material abundance in your life and it’s has been growing exponentially for your entire life.

Here’s the brain buster. Squint at that chart carefully and you’ll see that fully half of all the fossil fuels ever burned throughout all of history have been burned since 1990.

Which means that if you are 29 years old, you’ve been alive when half of all the fossil fuels ever burned throughout all of human history have been burned. Half! In just 29 years!

If that doesn’t shock you, then I need you to re-read it and think about it some more, because it’s a really profound insight. Especially once I connect it to the second giant step below.

Here’s another idea. What if we converted the fossil fuel energy we consume into human slaves? That is, the amount of work that a fit human could provide if they were digging ditches or crushing stones or hauling a cart, except it’s the fossil fuel providing the work energy.

By this method we discover that each year’s fossil fuel use is equivalent to 500 billion human energy slaves working to keep our houses cooled, food on the table, and moving ourselves and our innumerable goods about the face of the planet.

With only 7.8 billion people on the planet that’s as if there were 64 human energy slaves per person. Given that those slaves are not evenly distributed it’s more like people in rich countries have several hundred energy slaves each. It makes life very easy and sweet.

If or when your energy slaves go away, life will become a lot more difficult, but not in any ways that would be remarkable to your great grandparents.

When it comes to oil the data is even more surprising. To have been alive when half of all the oil ever used throughout all of human history you only need to be 22 years old. 22!

In just the past 22 years, as much oil energy as used throughout human history has been used. It’s moved your personal vehicle, massive container ships and airplanes. It’s dug up vast mineral ore deposits and installed wind towers, as well as spread plastic throughout the oceans. It’s trawled, and cut and scraped and plowed the dwindling natural habitats.

It’s very difficult to overstate just how much material abundance it has brought to the world. “All of it” would be closest to the truth. Water to a fish.

Ask yourself, now – how long will it be before another volume equal to all of that ever burned throughout history will be consumed? That is, how long before the next doubling – another half equal to the last half?

At current rates, that would be just another 21 years.

Weird, eh? But it’s how it works. It’s the miracle of compounding. Each doubling consumes as much as all the prior ones before it. This is awesome when it works for you in a portfolio, sneaky and treacherous when it’s working against you as it has for the actuarially deficient pension plans.

Einstein called compounding “the eighth wonder of the world” and said that “He who understands it, earns it; he who doesn’t, pays it.”

I know that energy extraction is complex arena and I’m not asking you to become a world-class petroleum or coal geologist or anything – but merely to use your intuition.

How many more doublings do you think we’ve got? One more? Can we manage to find and burn another amount of coal, oil and natural gas equal to all that has come before? Even if your intuition says that we’ve got one more doubling, or possibly two, you know there’s a hard limit in there somewhere.

Sooner or later there’s a limit to the exponential extraction and use of fossil fuels. Someday it just becomes too difficult to extract the remaining dregs and dribbles at a faster pace. That’s when the peak occurs. Then everything we take for granted changes. The water drains from our tank. We will rather suddenly become acutely aware of the water’s absence.

That day is not as far off as you might imagine. A decade, perhaps two.

With this one giant step back so much becomes clear about the future and what it can, and what it cannot, offer. One thing we cannot assume any longer, is an endless horizon of exponential growth in energy extraction. With that one insight, literally everything about investments and economic growth suddenly changes.

If you have money invested in the markets, and you care about the future, the next step is going to really matter to you a lot.

Giant Step #2: The Economy & Energy

Economic growth depends on energy.

It is this concept, more than any other, that serves to cast light on the future.

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