Thread by @NJHagens

The runway to The Great Simplification just got a lot shorter. The Ukraine situation -among other things -will narrow the wide chasm between the financial economy and the biophysical one. A thread ==> 1/n

2/n Our culture is hella dependent on: 1) cheap high quality energy at scale, 2) cheap credit at scale, 3) complexity/six continent supply chain, and 4) global trust. In best case, we will soon recognize and understand these ‘subsidies’. In worst, they shrink/disappear.

3/n Energy is most important commodity in the world. A barrel of oil does ~5 years of human labor equivalent -and we use 100 billion of these per year. Until now we largely ignore these fossil armies.

4/n In the short run money (via it’s fungibility and optionality) is what makes the world go round. In intermediate and long term, the world revolves around energy and commodities. We can print money we cannot print energy – only extract it faster.

5/n Due to multiplier effect, EVERYTHING in society will get more costly when energy gets more costly/less available. In USA, bottom 1/3 (by income) of society already spends 30% of their salary directly on energy, and close to 100% indirectly. This was before the war.

6/n When we fall short on economic growth, we issue credit to fill the gap. Credit allows us to pull resources from the future and call it GDP. All the while this social construct of total debt grows until it becomes a lodestone, or breaks.

7/n Best case: Ukraine is split like Germany post WWII into East and West with a stable military border between NATO and Russia, and Cold War 2.0 ensues. China becomes "bridge" so energy and commodities from Russia still end up in global system.

8/n That leaves Finance..Europe (and World) are connected at monetary hip. Europe will not be able to pay its bills much longer and will issue more debt to sustain itself. Eventually bond markets will anticipate the transition from financial economy to biophysical one.

9/n Ripple effects in bond/currency markets may create another 2008/2020 financial crisis. Will a ‘too big to save’ situation emerge this time? Where no amt of QE, artificial rates, guarantees, bailouts, coordination can save some central bank/currency? Japanification at best.

10/n In the worst cases, the military confrontation continues to escalate and a direct US/NATO versus Russia conflict is triggered, which would likely go nuclear, ending civilization. It's that dangerous and pundits seem naive. AVOID AT ALL COSTS.

11/n Other sundry observations (NB: below thoughts are not absolutes but imo solidly in the evolving distribution of possible outcomes):

12/n. A)Bretton Woods III is on our doorstep. Financial veils and mirrors coupled with eroding trust will create new alliances and currency systems. A smaller material economy will result.

13/n B)Complexity in finance is even greater than in the physical world. In coming months we’ll likely discover new Lehman Brothers existing in the labyrinths of digital claims on real things.

14/n C)Europe is in deep doo-doo vis a vis USA/Canada. The forward nat gas prices 12 months out are STILL 10x what they are in USA. Since 1970s, globalization and tech created huge cross border opportunities. But energy underpins the wealth of nations.

15/n D)Germanys central financial and economic leadership in EU will wane. Ultimately this war will spell the end of Euro. Too many claims vs underlying productive capacity. Still some time though for better decisions/prep.

16/n E)This war (barring megaton++ nukes) will do more for climate change than any activism of last 50 years as it is defacto large carbon tax and tax on consumption.

17/n F)Renewable buildout will slow, not accelerate due to a) less available credit b) more focus on stability and c) less reliance on complex supply chains of e.g. neodymium, rare earths, etc

18/n G)The initial gut reaction to scale nuclear power will also run into problems. Nuclear (like renewables) only fits/excels when paired with cheap, accessible NG (mdpi.com/1996-1073/7/1/…).

19/n H)“Conservation” the energy ‘source’ of last resort-in today’s world will lead to lower GDP which is the income stream to pay back financial debts. Ie. leads directly to The Great Simplification in developed world.

20/n I)Spite – or ‘losing something as long as the other party loses more’ will become more widespread in behaviors and calculations

21/n J)Putin and Russia will -at least for a time -become a focal point to blame for much of woes in USA. It's how we're wired.

22/n K)The policies of ‘import substitution’ ie guns/bananas specialization the world over will be rethought overnight, as basic needs supply chains will be rebuilt and shortened.

23/n L)Chinas wheat crop recently failed. They are going to be even more incentivized to keep Russia intact and as ally/commodity vector which suggests tighter geopolitical (monetary?) alliance.

24/24 M) The Great Simplification just got closer. Think/collaborate/prepare at various scales to meet the coming future halfway. May we live in interesting times. Many good outcomes remain but hard work ahead. /End thread.