Why the World Economy Hasn’t Collapsed… Yet.

8 min readJun 21, 2022
Dominos falling. Image credit: Charl Folscher via Unsplash

It has become more or less common sense that some sort of an economic meltdown is on the horizon. Inflation is soaring while consumers struggle to pay their bills around the world. Yet, despite all this, the world economy is still supposed to ‘grow’ this year… What is going on here? What is happening in the background?

Energy is everything

Before we unpack where we are headed, it is very important to understand the basics. Rule no.1: Energy is the most important input to our economy. In fact, energy is the economy. Without it our ‘machines become statues and our workforce turns into a corpse’. Contrary to modern beliefs though, it cannot be substituted: every energy source has it’s own place in the economy. Thus

energy price increases act like an additional tax burden: you have no other choice but to pay them, or go bust.

The problem is, at least for growth obsessed governments, that we have most probably reached peak oil extraction in 2018, and natural gas is about to be peaking soon. Any lost fossil fuel ‘production’ from this point (due to wars, accidents, embargoes, political turmoil and so on) will lead to further price hikes and volatility in all areas of our lives.

The problem is, for the rest of us, that we have built a civilization entirely on fossil fuels, and despite spending more then half a century on developing alternatives, like nuclear, solar and wind, we only fell deeper into our fossil fuel addiction. We are burning more fuel, and as a result, release more CO2 and methane year after year, with 2008/9 and Covid providing nothing but a short pause.

Much to our detriment however, ‘renewables’ are not a substitution to fossil fuels: they never were, and never will be. Actually, they were never intended to be as such. Solar and wind are intermittent and very low density energy sources, and can only be used to produce a portion of our electricity at scale, but certainly not all, let alone driving the myriad of other technologies our civilization depends upon (long distance transport of goods and waste, food production, mining resources — just to name a few).

World energy consumption by source. Image source: Our World in Data

It should not come as a surprise that we are still getting 85% of our energy from coal, oil and gas — just like 50 years ago. We’re still using these polluting resources to mine materials for, then manufacture, build and maintain the remaining 15% of our energy production — wind, solar, nuclear, hydro included... Not to mention the most essential energy resource production for humans and their livestock: food.

Knowing how dependent we have become on them, it should not come as surprise either, that when the price of fossil fuels go up, the price of everything goes up, starting with products requiring the highest energy inputs. Food. Paper. Chemicals — including the ones used in agriculture, boosting food inflation even further. Refined products… gasoline anyone? Metals. Cement. Glass.

List of the most energy intensive businesses. Source: US Energy Information Administration

Enter resource depletion

However, if you are missing the concept of depletion you will never be able to understand what is going on for decades now and how we are only being served the first course in the banquet of consequences with inflation.

In nutshell: all of our mineral resources (oil, gas, metals etc.) are located in finite deposits. Once you mine them, they are gone. Some deposits are easier to get into, some require tremendous energy and material investment to harvest. People, optimizing for the highest gain vs effort invested, started to extract the cheap and easy ones, and left the hard and costly to ‘develop’ deposits to the end.

The problem is, that we had a lot more of the latter to start with: a few fat mammoths and a thousand swift rabbits. Since we have burned through most of the easy ones first, they are now all in decline. (Sorry, there are only a few lean chunks of mammoth meat left.) As a result almost all of our new mining projects needed to maintain this level of complexity and consumption — let alone growth or ‘transition’ in any sense — will be coming from the hard to get bunch (the swift rabbits) and as a result will require more energy than ever to extract.

Remember: the same principle is true for both energy resources (fossil fuels) and minerals (metals). The trick is, that the depletion of high quality metal deposits can be masked by applying energy intensive technologies — but only as long as we have an abundant source of cheap, reliable, dense, portable, light and readily expandable energy resource — solar, wind and nuclear not being such.

So when oil, the master resource (enabling the mining of raw materials, as well as feeding, building, transporting and maintaining the rest of our civilization) starts to decline due to geological reasons, then all of a sudden, food, metals, and renewables together with batteries start to feel the pain too. There are simply not enough cheap, reliable, dense, portable, light and readily expandable energy resources left to maintain this level of abundance, let alone growth.

Enter the ‘experts’

What is really astonishing, that not even the supposed ‘experts’ get this. Not even the ‘№1 Source for Oil and Energy News’, (not to mention mainstream media). As Irina Slav wrote on Oilprice.com recently how this ‘perfect storm’ caught oil markets off guard:

Goldman Sachs’ Jeffrey Currie recently acknowledged this gap between expectations and reality in an interview with Bloomberg, saying, “The markets moved faster and the fundamental tightness is deeper than what we would have thought three or six months ago.

“This is where we should be, but it is a lot deeper than we would have initially thought. Energy and food right now, as we go into the summer months, are severely skewed to the upside,” Currie added.

What a fancy way to say that we hadn’t had a slightest clue what was coming. Come on, it is not that hard to understand. I’m literally telling that this cannot possibly end well for 9 months now. OK, maybe no one reads my articles from Goldman Sachs. I can live with that. Others, much smarter than me however tell this for years — if not decades — already.

So here is your chance to get a proper context to this ‘perfect storm’: the majority of oil producing countries are experiencing a decline in production since years if not a decade now, the American shale revolution is over, and Saudi Arabia has barely left with any spare capacity. As a consequence oil production still struggles to climb back to pre-pandemic levels. The resulting shortfall in the past 2 years have started to make its presence felt in falling inventories and rising prices.

The economic ‘experts’, like the one cited above, have none of this of course: as they are in full denial of peak oil supply and resource depletion in general. They never mention these terms, never use them in their ‘models’ and as a result reliably deliver false projections. Instead they salivate on shareholder returns, blame lack of investment, green policies, everything but the real problem: that both metal mining and drilling for oil have became too energy intensive to maintain at such a high level — destruction of the ecosystem aside.

Earth’s once rich mineral resources have started to deplete and gave way to much poorer deposits. Seen in this light, peak oil demand, which is simply and factually not happening, is nothing more than a poor cover story to hide the terminal illness of this civilization.

This was entirely predictable, thus preparations could have been made — but they weren’t. Instead of admitting that peak oil supply is here, governments around the world have started to blame each other, and instead of increasing cooperation, they have initiated trade wars and embarked on economic sieges (embargoes) along with very much real wars.

The magic wand

Central banks in the meantime did their part of the ‘job’ as well. Deluded in their ‘powers’ they supposedly have over money, they have started to rise interest rates to ‘stop’ inflation. Note how this is a false approach in two ways:

  1. Current price increases are not a result of too much money, or bad policies — but humanity as a whole hitting resource limits. Inflation is thus affecting everyone around the world, not only those who previously deluded themselves with money printing.
  2. Higher interest rates too act like a tax increase: governments, businesses and individuals affected by it now has to pay more to the bank every month, and depending on where you live, by a significant amount. Added to the additional burden of higher energy costs, this can lead to defaults, and even a re-run of the 2008 banking crisis.

At this point one might be tempted to believe that “Civilizations [do] die from suicide, not by murder”, but why should we bother to listen to a long dead historian…?

What about Europe?

Where is Europe in this resource driven inflationary crisis? Screwed. And not only in economic terms. The writing is on the wall: once energy resources run out in an area, political instability and wars follow. Russia has realized this decades ago, and was waiting for the right moment to seize. Were it not for this military conflict in Eastern Europe (in which the US has played and continues to play a major role), this would have been a ‘simple’ economic squeeze, then a slow decline into poverty and towards complete irrelevance. Lacking the necessary resources — chiefly cheap energy — to maintain prosperity, it was all but inevitable that a cost of living crisis would eventually ensue in Europe, along with a loss of jobs, social security and political stability.

Even though I live there, I did not pinned my hopes on this economic gravy train running too far — but maybe I’m in the minority. The reckless behavior of Europe’s leadership class — bordering outright stupidity — on the other hand has really astonished me. I don’t know what they are thinking, but I would not count a full scale war with a really high potential to escalate into nuclear annihilation among the best ideas to improve the situation. I know it is hard to admit that the seven decades of post war prosperity is now over, and that the continent is about to go under, but it is way better to live as part of a poor agricultural society than to die from radioactive fallout. Again, maybe I’m in the minority here.

Anyway. So why haven’t the world economy collapsed yet? Well, because it is still on the way collapsing. So far this simple fact was hidden by Covid-lockdowns and our hardships were blamed on a war waged on economic grounds as well as on the battlefield. People and businesses are living up their last reserves, while trying to stay afloat despite soaring energy prices, food inflation, various shortages and now rising interest rates — threatening to burst the biggest debt bubble ever. How long these buffers will last is anyone’s guess, but I would not bet the farm on the world economy resisting the tide for too long. Europe might be the canary in the coal mine, in terms of being the first wealthy region to go under, but it surely will not be the last… As they say though, we shall see.

May you live in interesting times,





A critic of modern times - offering ideas for honest contemplation. Also on Substack: https://thehonestsorcerer.substack.com/