Probably the scariest thing imaginable to the powers that be isn’t military adventurism by a would be hegemonic power, or anthropogenic global warming, or the growing dissent arising from increasing economic inequality, or Islamic extremism, nuclear proliferation, homophobia, racism, or myriad other issues commonly discussed by the mainstream media, but rather, the impending end of the infinite economic growth paradigm.

Governments around the world cannot envision a world where the expectation of perpetual, exponential, endless economic growth no longer exists. To them, and with just modest hyperbole, the specter of growth ending conjures up images of the Black Death. This might seem absurd to the casual observer; nothing grows forever except cancer, and it eventually kills its host. In this context then: why such grave concern for something as seemingly innocuous as the end of economic growth?

The fundamental problem is that the existing global economic system has built into its design the imperative of infinite growth, and no one has effectively brainstormed how a “Plan B” might function. In the existing system, money is created out of thin air and loaned into existence with interest attached. However, the interest isn’t loaned into existence, only the principal. To pay back loans at interest requires a further expansion of the money loaned into existence. It’s the NEW money loaned into existence that pays the interest on the OLD loans, in a never ending cycle. To successfully accomplish this requires that economic growth be commensurate with, or match, the expansion of money loaned into existence. Otherwise, with constantly increasing liquidity, rampant inflation would occur that would destroy the value of the currency, in a Weimar Republic-like collapse.

The fundamental reason why robust economic growth is ending, is that the resources required to sustain it are increasingly in short supply, especially energy. Our energy system is not just a subset of the economy. Our energy system “IS” our economic system. Professional economists either fail to fully understand and appreciate energy’s role in what I call “the physics of economic growth”, or they know about it, but refrain from articulating the connections. You see, all economic activity requires that “work” be performed; work in the strictest physics sense. Energy is defined as the capacity to do work. So energy has to be expended to do the “work” of economic activity. Gains in efficiency can result in improving the number of units of useful work extracted per unit of energy expended, but gains in efficiency are up against the Law of Diminishing Returns, whereby improvements in efficiency become progressively more incremental with time. This especially becomes noticeable with any “mature technology”. Detractors may also say that substitution of one energy source for another will solve the problems associated with depletion of a primary energy source. However, so-called “alternative” energy sources, in addition to being really just “derivatives” of fossil fuels, also fail to have the energy concentration, portability, reliability, and versatility of fossil fuels. In addition, often being liquid at room temperature adds to the versatility of fossil fuels. Though we should continue research, development, and deployment of the so-called alternative energy sources wherever practical, no combination of such energy sources will ever compensate for what we derive from fossil fuels, such that they could permit the continuation of robust, exponential economic growth. This condition is terminal.

If I’m making the bold assertion that economic growth is coming to an end, then what is the time-line for this eventuality? Is it possible that we are already experiencing serious, sustained headwinds jeopardizing future economic growth?

If we look at recent history, we see a Dow Jones reaching a new record high almost daily, unemployment reported at only three percent, an official inflation rate that is very low, and reported quarterly GDP growth that hits the desired targets. These numbers, viewed in isolation, would support the view that we have a healthy economy. The facts behind the numbers paint a different portrait. Fundamentally, we have constructed an ILLUSION of growth through a staggering expansion of both public and private debt, sustained historically low interest rates, and repeated quantitative easings and their afterglow.

Government debt (deficit spending) was seen as outrageous during the Reagan administration when it reached $200 billion dollars. This was unprecedented at the time, and during Reagan’s term in office, the total national debt more than doubled. We now have deficit spending of over one TRILLION dollars annually. Since the Great Recession, deficit spending has not been less than $600 Billion dollars; this figure having occurred near the end of Obama’s second term. The problem with a constantly increasing national debt, due to years and years of deficit spending, is that it presumes that a wonderful era of sustained economic growth is on the horizon; economic growth so vibrant and robust that we simply grow our way out of debt. This has been the view for twenty years, and yet the wished for growth repeatedly fails to materialize. As you see, deficit spending is really borrowing from the future, placing a potentially massive burden on future generations, because of the delusion of imminent sustained future economic growth.

I believe that the problem rests with policy makers, who fail to accept that the period 1945-1980, when tremendous economic growth reined, and a massive middle class emerged, was an aberration, or anomaly. It was what people would now call a “one off”. This was the golden age of the American middle class. All the economic “numbers” were wonderful without deficit spending, without near zero interest rates, and without quantitative easings. The growth was REAL. Policy makers are trying to get us back to that golden economic age, but it can never occur again. The resource base that could make such growth possible no longer exists. This is especially true for energy.

You may say “What about fracking? Won’t fracking save the infinite economic growth paradigm?” Fracking bought us some time; about ten years. This was time that we should have been developing a Plan B, or new governing economic model. We failed to do this because finding ways to preserve the status quo was the path of least resistance. Fracking is a massively failing business model; an epic Ponzi Scheme that has disappointed Wall Street, private equity firms and investors since the rush to drill began. The break even price for oil is much higher than what is reported, otherwise the industry would not have an accumulated negative free cash flow of -$250 billion dollars. The negative free cash flow is due to the fact that the industry’s CAPEX(capital expenditures), has exceeded the revenue from the sale of oil by $250 billion over the last ten years. And with a sustained slowdown in the global economy, oil prices are not likely to go high enough to reverse this. And even if prices did rise, tier 1 acreage has been nearly exhausted, and tier 2 acreage requires even higher prices to break even.

It may seem ironic that even though the rig count has fallen by 25% over the last year, that production numbers for oil continue to rise. This is due to DUC’s (Drilled, UnCompleted) wells. These wells have been drilled, but not fracked as yet. There is a large backlog of such wells, but it has decreased by 10% in the last year. As drilling activity continues to decline, and the backlog of DUC’s continues to be drawn down, eventually oil production numbers will peak. This will likely be the absolute peak in domestic oil production. The best estimate for when this will occur is summer 2021. And remember, I said that the energy system is not just a subset of the economic system, it IS the economic system. So when oil production peaks, and outlays increase for foreign oil purchases, within one year the US economy will go into recession. This recession will be deep and long lasting; no “real” growth following it. I can’t envision the aftermath, or how policy makers will respond, but it appears that by no later than summer 2022 we will go into a deep and prolonged recession. I would advise making arrangements and being prepared.

I am going out on a limb in predicting a deep recession by no later than summer 2022. I reserve the right to change my assessments in light of new information. A recession could for example occur earlier than my timeline should there be lingering trade disputes with China or a more serious economic slowdown globally. Factors that could forestall the recession only postpone the inevitable by about a year or two; inevitable because resource constraints won’t permit growth beyond this timeline.

Regardless of when the next recession occurs, one has to wonder how the U.S. government would respond to a deepening recession. Normally, just before a recession commences, interest rates are at least in middle single digits. This gives the Federal Reserve the leverage to significantly reduce interest rates toward zero, cushioning the fall in an attempt to sustain liquidity. However, with interest rates at around 1.75%, not much cushion will exist when the next recession hits. Therefore, the economic toll is likely to be hard and fast. Perhaps more massive quantitative easings will be a strategy employed, though this just kicks the can down the road by burdening future generations with the massive debt. Also, QE’s become progressively less effective at goosing the economy the more often they are tried. Evidence for this comes from Japan, which has been notorious for repeated QE’s that no longer have the intended effect.

Personally, I can’t envision any combination of strategies that can prevent serious economic carnage. Propping up an economy with bailing wire, meaning the aforementioned massive deficit spending, sustained historically low interest rates, and repeated quantitative easings, will not alter the shaky foundations upon which our economy is built. And sadly, if we remain committed to the infinite growth economic paradigm, the foundation WILL crumble because the resources no longer exist to make it strong. Our country and the world need to seriously work toward a smaller, steady state economy. A managed contraction toward this goal is the only route governments can take to circumvent economic collapse. Unfortunately, few governments see the urgency.

How can an individual strengthen their economic position in such uncertain times; to build economic resiliency? Reducing debt is front and center. Pay off all credit cards. Pay off as much of the mortgage as possible, or move to a more affordable home. Live efficiently and well within your means. Keep sufficient cash in preferably more than one savings account. Purchase physical silver or gold and keep it in a safe deposit box at your bank. I have done all the things I have just listed. It is definitely worth the peace of mind. I will revisit this essay from time to time over the next few years to see how events have transpired. As they say: hope for the best, but prepare for the worst.