Dead Money …

Looking over some of the thousands of articles written about the current euro- area crisis and the impending Greek default some items are notably absent from the conversation:

The countries which carry the greatest debt burdens and have the least means to service and repay the debts are also Europe’s energy deadbeats. Don’t believe me, see for yourself:



Figure 1: this chart is from Jonathan Callahan’s Energy Export Databrowser. Greece does not produce any petroleum energy to speak of: a few thousand barrels per day from offshore fields. It has to import fuel from overseas, mostly from Middle East producers such as Iran. Where does Greece get the hard currency to swap for petroleum overseas?

From an energy standpoint Greece is insolvent. It once borrowed — euros — from banks to buy fuel. Now it has to borrow from new banks to pay off the old banks AND to buy the fuel. Greece is on the road to oblivion. It buys less fuel even as it falls further into debt. Without some drastic change Greece will not only default but collapse.

Like the other countries, Greece obviously failed to earn enough from using the fuel to pay its energy bill otherwise it would not be insolvent.

Media mavens insist Greece is insolvent because its citizens evade taxes and European vampire capitalists don’t own enough of Greece’s productive assets. These assets did not produce a return for the Greeks, why would they produce a return for anyone else?

Greeks borrowed money to buy German and French cars and military hardware. The Germans and the French lent money — vendor financing — specifically for this purpose! The cars/hardware didn’t actually produce any useful returns, they are simply toys. The manufacturers profited by the sales and banks by extending the credit. Now Greeks and their government cannot pay. How can they pay? They have no productive assets, only useless waste- enablers and smog from the burnt fuel.

Germany and France are endangered by the Greek insolvency that they themselves promoted. When Greece cannot pay its bills, there is no collateral for Germany and France to collect, only some used cars.

Here’s another country:



Figure 2: Ireland has zero producing oil wells although the media hypes Ireland’s ‘potential’. It must import every drop of motor fuel and has for as long as there have been motor cars. Ireland also does not manufacture anything except whiskey and beer. It’s a Euro tax haven for trans- national businesses. These don’t earn enough to pay Eire’s fuel bill. If they did, they would have been doing so already. For Ireland to obtain fuel it must borrow. Now it’s broke — from attempting to earn from its fuel consumption — and can only subjugate itself to the IMF and the ECB in order to service long- dead money. How long can this go on? Probably another year or three then Ireland along with Greece will be completely bankrupt.

It’s not enough for Eire to borrow to pay interest on defunct loans, it must borrow additional amounts simply to keep the lights on.

Like the other euro deadbeats, Ireland cannot escape the common currency. If it were to abandon the euro and issue its own currency it would not be able to buy fuel. A sharply depreciated punt would hardly be acceptable by the Saudis or the Iranians who can sell for high prices in hard currency. Ireland would have to buy euros or dollars on the foreign exchange markets at a severe discount. The F/X cost would be greater than the current austerity costs are to Ireland. Basically, Ireland has traded its present and future for the chance to drive luxury cars in circles between ugly houses for a little while.

Here’s another country:



Figure 3: This country used to have a pretty strong export market for its fabric goods. The importation of euros accompanied a torrent of cheap Chinese textiles to both Portugal as well as to her customers. This was by way of China’s acceptance into the WTO with a yuan sharply under-priced relative to the euro. In a trice, Portugal found itself unable to earn enough foreign exchange — euros — to pay for its fuel. Now that China has destroyed Portugal’s ability to earn, it makes ready to lend Portugal additional euros at a high rate of interest, to add to the unpayable debts it already carries.

Like Ireland and Greece, Portugal is absolutely dependent upon both the euro and on euro- denominated loans to ‘afford’ fuel. No loans and these countries are on an instant — and crushing — energy diet.



Figure 4: Spain has an oil field, perhaps more than one. Unfortunately, the Spanish are massively unbalanced on the import side. Cars are easier to come by than new oil fields. Euro- denominated credit enabled developers to clutter the Spanish countryside with millions of ugly boxes. The outcome is the Spanish cannot afford both the empty houses and the fuel … along with the interest on all the relevant loans. This is an example where ‘having it all’ really means ‘having nothing at all’.

Here is the last of the PIIGS, Italy:



Figure 5: Italy actually has enough oil production to register on BP’s 2010 Statistical Review. This is likely a reason — a strong tourist industry is another — why Italy isn’t standing in a breadline. Italy also makes cars for domestic sale and export. By exporting cars, Italy digs its own grave: the cars it sells cannot earn anything for the cars’ users. The exceptions are deliverymen and taxi drivers, police and emergency workers who actually use cars to earn money. In this way, Italy and the other EU exporters cannibalize their export partners, by selling them goods that cost too much to make profitable use of.

Italy has also lost export business to the Chinese leviathan, which means an increase in its need for more credit.

The PIIGS together consume 4 million barrels per day x $100+ per barrel. This is about a billion euros a week sent to petroleum exporters. This in turn must be borrowed: no wonder the EU is broke.



Figure 6: This chart has to get your attention! Except for Norway and Denmark the entirety of Europe is an energy debtor. The North Sea field that that supports Norway and Denmark is in terminal decline.

Note the similar declines in energy consumption among the peripherals and Europe as a whole. Europe is not necessarily more efficient: declining GDP leaves less funds — borrowed or otherwise — available for fuel for all countries.

What can be seen on these charts is energy conservation enforced by credit limits: when the credit runs out so does the fuel. Right now, Greece, Ireland and Portugal are on the way to being car- free. The rest of Europe is only slightly behind. As more countries become car- free, the manufacturing states will also fall insolvent. Germany and France without the export sales of Porsches, Peugeots and Benzes are Detroit with more picturesque ruins and nuclear reactors.

Here are a few things to keep in mind when you are reading articles about the European Debt Crisis:

– The flow of funds — euros — overseas toward energy producers in the Middle East and elsewhere represents a great portion of insolvent countries’ cash flow.

– That the flow of funds between one European country and others in foreign currency — euros — represents another great portion of insolvent countries’ cash flow. These are the funds swapped for automobiles, auto- related ‘development’ and fuel- guzzling military hardware.

– The funds to energy producers is simply money borrowed then lost. There is no return other than that gained on the purchase/sale of the energy products. Money borrowed by the European establishment likewise produced no lasting return. Borrowing was for waste- enablers such as luxury cars, new highways, shopping centers, and American- style suburbs rather than capital for productive enterprises. In this light, the euro is a predatory instrument like a sub-prime mortgage.

– The Euro- nations with greater finance access are using this leverage to buy a small amount of time at the expense of their dependent trading partners. Meanwhile, the time- buying process destroys whatever goodwill the euro experiment earned since the currency union idea was bruited. Instead of accord, it is devil take the hindmost. What trust citizens had in their institutions is now a ruin in Syntagma Square crushed by an insensitive and counterproductive ‘Troika’.

– Ironically, the same countries’ workforces are now accused of being ‘uncompetitive’ by the same entities that rendered them uncompetitive. If there is a more perverse and diabolical dynamic it is hard to see what it is.

– The European countries at the edge of default cannot afford to do so. The Eurozone debtors cannot be compared to Argentina or Iceland as neither countries are energy debtors.



Figure 7: Argentina’s oil fields are productive but in terminal decline. In a few more years, Argentina will be an energy debtor like Italy, with sufficient oil production to bring back memories and nothing more.

Europe’s fuel- driven waste- based lifestyle is kaput, the goods bought and borrowed against for purchase are useless, the fuel used once then gone: all borrowed to gain this is noncollectable. The money has been spent and gone, it is ‘Dead Money’.

30 thoughts on “Dead Money …

  1. Rob

    A couple comments:

    1) The inverse correlation is also interesting. Which 2 developed countries suffered the least damage from the economic crises and still have big real estate bubbles? Canada and Australia. It can’t be an accident that these countries are also energy exporters.

    2) I am sure you would find the work of Timothy Garrett interesting.

    Garrett has shown that $1 US (adjusted for inflation to 1990) equals 10 mW of power. In other words, wealth equals energy consumption (power). What I find profound about this relationship is that you would expect the rate of wealth creation (GDP) to be proportional to energy consumed. But in fact it is total wealth that is proportional to energy consumption. It starts to make sense when you think about what would happen to the value of your home if it was disconnected from all energy and if no energy could be used to maintain it. Or the value of your car if there was no gasoline.

    Wealth equals power has some huge implications and suggests to me that the decline of complex civilization will be much faster than even most doomers predict.

  2. Jb


    WOW. Absolutely the most profound post you’ve made thus far, IMHO. Charts help those of us who are statistically challenged. Chart 6 begs the question: was the Euro created (and nations like Greece included) in order to gain the purchasing power/leverage necessary to keep The Great Game going a bit longer?

    I completely agree with Rob: the decline will be much faster than we hoped for. I just don’t see any way out of this box canyon. You can paper over anything you want, but you won’t find oil beneath Paris, London or Berlin.

    Rothenburg ob der Tauber is quite nice, though. It wasn’t built for cars.

    It just so happens that the city sent an assessor around today looking at houses on my block. He told me real estate values here have dropped by 8% so far this year. I gave him ‘the tour’ and explained why I was not making improvements. He wasn’t surprised but we didn’t get into the broader ramifications.

    Good gravy, man! Where is that SHARE button?!

  3. Reverse Engineer

    A good analysis, but it skips over some stuff.

    Germany is a net Oil importer, yet Germany is not a debtor nation. Similarly, China is a net Oil importer, yet China is not a net debtor. You can’t strictly make the argument its all about cheap labor either, since German labor is expensive.

    I don’t quibble with the point that any nation that is a net oil importer is going to have trouble finding something worthwhile they produce to trade for that Oil. Food for Oil seems the only likely barter here.

    However, there is still more to the wealth distribution than just the Oil question. I believe it has to do with how currencies have been manipulated over the years by the BIS, with Germany being the prime beneficiary of this manipulation. However, I can’t prove it by the numbers.


    1. aa

      it might be worth looking at overall energy. we all know that fuel is a specific non-substitutable energy source but it’s my understanding that germany and france are large producers of energy for europe and are energy solvent in gross terms. fuel of course is another story.

      1. steve from virginia Post author

        The overall energy picture for the EU is indeed different from the petroleum fuel version: Germany is self-sufficient with coal/lignite reserves and France has — for now — surplus nuclear energy capacity. To the degree these countries can leverage these power sources into tradeable goods that can be swapped for petroleum is the degree that they can avoid the peripheral countries’ energy fates.

        I look at all the European countries as being crewmen clinging to the mast of a sinking ship. Germany, France, Norway and Denmark are on the top of the mast while those on the bottom — Ireland, Greece and Portugal — are already underwater.

        Even Italy’s pathetic domestic petro production is enough to allow it to muddle through for far longer than its neighbors. None of the EU countries can export a surplus — in the form of goods and services — to afford to support current rates of import consumption. If they could, the EU would have a surplus to divide rather than small surpluses for Germany and the oil exporters and deficits for the rest. Germany’s advantage isn’t its energy rather its mercantile position within the Eurozone. It earns by exporting more of its energy consumption — in the form of luxury automobiles and industrial goods — than it actually consumes itself.

    1. Jb

      Assuming I did the math right, the recoverable oil is about a one month supply for the world at current rates. He didn’t mention the grade of oil. Sounds like the same playbook the nat-gas developers are using here in the good ole USofA: take the money up front and get out.

  4. anthony innes

    Excellent article that only omits the food production and distribution energy cost.
    Net enrgy cost is the economic question of the 21st century but like the crime of war and ecocide questions that arose in the 20th century we may not be kicking the can very much further down the road.My guess is that is joy of compound interest.

  5. steve from virginia Post author

    Hi Rob, thanks for the tip @ Tim Garrett, whom I was not aware of. Also interesting is the Pacific Institute for Climate.

    Trying to figure out what anything is worth without the fuel to run it is to some degree what the finance crisis is all about. Can crude oil be sustainably priced @ $200 per barrel? What does $10 oil look like? You can say and I can say but the whole idea is up for grabs. The ‘old’ ideas are cultural: “can I impress with my energy wasting house/yacht/airplane/vacation/clothes/car/etc.?” There are no substitute values right this second.

    I know a lot of people who are praying to themselves, “Please keep the balls in the air just a little longer so I can get out …” Get out of what, into what? How the establishment is responding is indicative: give the little children dosemeters. WTF??? Hosing down your unemployed college grads w/ water cannons. Unreal!

    All doomed in their own way. Children get that radiation gift that keeps on giving. Whatever the educated youths of Europe want, it’s likely agricultural labor jobs is what they will get.

    Reverse Engineer, the successful energy debtors all have an economic — value adding — niche of some kind. They are also parasites upon their trade partners.

    Some of the characteristics successful energy debtors share include a trade surplus, current account surplus, a high savings rate, a mercantile system and (some) control over exchange rates.

    This group would include Japan, China and Germany. It helps if the energy debtor has at least some domestic production: China is now an energy debtor but has significant domestic production, so does Brazil. Japan and Germany can compensate by being at the top of the fuel waste enabling pyramid.

    Mercantile economies are ‘built’ for a post- peak world — for a little while.

    If any country discovers significant oil they stop being deadbeats — for a little while. Ecuador defaulted a couple of years ago but she exports a couple hundred thousand barrels of crude per day. If Ireland’s oil exploration (ever) pans out, Ireland will become as ‘stable and prosperous’ as Denmark is now rather than contemptible bums.

    Rothenburg ob der Tauber is indeed quite nice. Too bad, I don’t speak German …

    1. Reverse Engineer

      At this point, even if Ireland finds some Oil, unless its a Ghanwar and can put the whole world awash in Oil for the next decade, I don’t think small increments of Oil will help anyone all that much.

      It may keep your lights on a while longer than countries that are importing oil, but its productive function in a wate based economy is finished globally. This because whatever you produce with Oil, most of the world cannot afford to buy. Even the raw Oil is too expensive; any value added product made from the Oil is still more expensive and beyond the purchasing power of most people.

      The Industrial model functions on economies of scale and mass production enabled by thermodynamic replacement of human labor on the production line. This means to be profitable, you must sell MANY products, not just a few expensive ones to the Elite.

      Germany, Japan and China’s mercantilist export based economies will fail because there simply are not going to be consumers enough to afford the products such assembly lines produce. About the only cars that will be assembled will be done on the old Rolls-Roce model, individually by a few craftsmen. They will be assembled mainly by recycling parts from Junkyards.

      What remains of the Oil mainly will have to be used to maintain critical infrastructure as long as its possible to do that. Basically that amounts to keeping the electrical grid up and running, which amounts to using the Oil to mine the Coal and move it to coal fired plants, and keeping water pumping stations and sewage treatment plants operational.

      Once this level of infrastructure reaches terminal failure mode, we head into Richard Duncan’s Olduvai theory.

      The key for the FSofA and NATO countries is to use the Military to commandeer remaining Oil in MENA as long as possible, and take it essentially out of the trade paradigm and into the outright theft paradigm. This of course will set up a conflict with the Chinese for the same batch of Oil.

      At current depletion rates and current military buildup rates in MENA, one has to figure the resource war for the Oil is no more than 2 years away at this point. Its past the point of an economic problem, now it is strictly a power issue. What remains of the financialization game is a sideshow. The real show is in the geopolitical set up of the chessboard here, and you can be pretty sure the tanks will roll in North Africa and across the Tigris and Euphrates valley once again.

      Patton,Montgomery and Rommel fought this war before, and it was fought before that at the end of the Ottoman Empire. Its going to be fought one last time here, and in the end, the tanks will run outta gas and be left as rusting hulks on the battlefield. Then we will finish the fight with Trebuchets and Atlatls and the Bow and Arrow. There won’t be many left standing at the end of it, to be sure.


  6. Loveandlight

    “Ireland also does not manufacture anything except whiskey.”

    {A-HEM!} And also Guinness Beer! Seriously, yes, Ireland is poor. During the seventies and eighties, Greece and Ireland were the poorest non-communist countries in Europe consistently. I am at a loss to imagine what made anybody think that admitting either to the Eurozone was a good idea. As a man of Irish ethnic descent, it’s painful to admit this, but if it weren’t for the everlasting anitpathy between the Irish and the English, Ireland might possibly have been better off remaining part of the UK.

    1. Fourier2020

      Why did God give oil to the Arabs and whiskey to the Irish? Because God gave the Irish first choice!

  7. Alexander Ac

    Hi Steve,

    great analysis. Yesterday I presented the graph of Luis de Sousa showing PIIGS at the top of oil dependence (highest oil percentage in the total energy consumption) with the exception of Luxemburg (financial centre), Cyprus (island) and Malta (island).

    I think you know this graph. When I presented the bond-yields interest rates and oil correlation, one economist said it is not convincing enough. I also mention work of Garrett (9.7 mW per IA dollar) – still not convincing – then I said, I have no other argument…

    I am sure this post would not convince 99 % (100 %) of economist that Europe has an energy problem (and yes, political as well)…


    1. steve from virginia Post author

      Hi Alexander, thank you. I understand completely.

      I suspect those you were speaking to understood well enough. They simply chose not to admit it. Of course conventional thinking forestalls a more imaginative set of policies. It’s hard not to feel sorrow for the Greeks and others because there is no effective champion for them.

      I wonder if the unconvinced economist could identify any possible outcome of current policies other than failure? The economists have a burden of proof they cannot easily bear. How does one make (allow) a good economic outcome take root in Greece or Portugal? There is a very difficult set of interrelated conditions to address. Your economist says, “Let’s exclude some of the conditions and make the task of improving conditions for the Greeks and others that much more difficult.”

      (shakes head …)

  8. rcg1950

    There is just so much sunk capital that only looks good (ie. profitable) with status quo pre-peak that no one with a stake in it (nearly everyone in USofA) is willing to let it go or even admit the game is up … yet. So even money that could potentially be alive continues to get sucked into zombie land.

    Things will likely have to break down quite a bit from where we are now for the realization to hit that totally different kinds of investments are required than those that seemed so appealing in the past 150 years. But by the time this ‘epiphany’ goes mainstream choices will be even more constrained than presently. I hate to see such a stupid human failure, but it seems most probable.

  9. Ellen Anderson

    I am waiting for that on-so- brief window of opportunity for poor folk like me when TPTB suddenly realize that they will have to bail out the masses instead of the banks in order to support the Chinese mercantilist economy. They will have to give us money and force us to spend it. I am all stocked up on salad shooters but I could use – what could I use? What could I buy to avoid what is coming next if I had the money? Our wish lists will provide clues to the myths we are adopting now and disguising as predictions about the future. Something to think about.

  10. Josh

    Steve, since many of your original posts were devoted to the wasteful, narcissistic car culture we have created, I thought it would be relevant to point out that California’s municipal bond market is starting to deflate like a bald tire. Meredith Whitney’s distress signals appear to be accurate – the Golden State’s muni bond ETF’s are rolling over and not confirming the optimism of the equity markets, nor is the VIX index for that matter.

    1. steve from virginia Post author

      The only quibble I have with Meredith is I don’t think she goes far enough. I suspect she sees suburbia as somehow ‘productive’ in ways it cannot possibly be.

      As for the markets, I would not be surprised by a ‘surprise’ to the upside in all mkts except the lowly dollar. I don’t think any of this will go anywhere, but the urge to retest the highs in all the various mkts is strong. I’m looking @ $38 silver, $115 Brent, 12,600 on Dow then … out o’ gas. Everyone is looking toward August 4. Will the US default (probably). More on this later …

      1. Josh

        If language is a virus then the phrase “I don’t think” is the weaponised version. Know what I’m sayin’?

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