Wednesday, 11 May 2011

Inflinite growth paradigm meets end of cheap energy

As a non-economist I am not usually one for graphs.  However this one did make quite an impression on me. 

It shows clearly how we have left an era of economic growth and stability and are in a new era of instability.

It is 20 year chart of the US 30 Year Treasury Bond vs. a broad commodity index  It reveals how the purchasing power of the long-dated US Treasury Bond has fared against a basket of commodities over the period.

Click on the graph to enlarge
It shows how the western economic system was still in expansion, funded by cheap fossil fuels. This was round 9/11 and prior to the invasion of Iraq.
Basically paper assets are priced to reflect the belief in their future purchasing power against natural resources, energy and labour.
After 2002 comes the end of cheap energy (Peak Oil) which marks the end of economic growth in real terms.  Paper assets lose their stability and begin a period of decline.
After 2008 the economic system succumbs to its own lack of industrial growth due to the lack of availability of cheap energy. This leads to a new era of volatility in prices.
For the original article please see here.

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