Interviewed by Casey Research Managing Director David Galland
Chris Martenson clarifies his perspective on the likely trajectory of the economy in this video recorded at the Casey Research/Sprott Summit, When Money Dies.
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David Galland: We're here in Phoenix with Chris Martenson, the author of The Crash Course which is on video and now it's a book which just came out. Chris, I can't remember the last time I've heard anybody get three separate rounds of applause for his speech. It was a great speech; you knocked it out of the ballpark. Basic theses being that we are seeing a lot of exponential increases in things like consumption and things like base metals and energy is going to be problematic. Why don’t you – for people who aren’t familiar with your work – just a quick overview?
Chris Martenson: Sure. This is a scientifically based view; I try to leave as much of my personal opinions, beliefs out of the story. I think the data alone tell a really compelling story and you mentioned the exponentials – it's got two pieces to the story. The first is that we're exponentially increasing our use of all sorts of resources. That's what our economy is. It's a flow of materials from point A to point B, and it all begins with stuff that comes out of the ground. If you want to have a car, you need steel, you need copper, which means you need iron ore, you need copper ore, and so when we look at these numbers, we say, "Wow, we're exponentially increasing our use of all these base minerals and that’s on one side of the equation. On the other side, we see that those same resources that we're depending on are depleting exponentially, so we are trying to get more and more out of less and less and that's been a great story. It has worked for us for a long time. My thesis is that over this next period of time, starting now over the next 10 or 20 years, we're going to discover something really important, which is that we can't get more and more out of less and less because of a shortfall in the amount of energy that we have available, particularly around oil.
David: We're particularly concerned about petroleum and one of the questions that came up at the conference, of course, is what about all this natural gas and the Bakken formation and isn't that going to sort of save the day and ignoring the fact that at first the environmentalists have now picked fracking and unconventional gas development as a new poster child for evil capitalism, you know, but just assuming they weren’t in the way, is that a significant part of the solution?
Chris: It will be an important part of the solution, whether it will allow us to transition disruption-free from here to there, so if we started 10 or 15 years ago with this horizontal drilling and we've got all this natural gas and then we said, "We really want to use this to help transport things." That's what we use petroleum for – getting things from point A to point B. So if we really started that, we would say, "Great, we're going to start offering compressed natural gas cars, filling stations, pipelines to get those things there, all the natural gas there, and we're going to really build that infrastructure out. That will take 10 or 20 years. The fastest energy transition ever on record was 40 years waiting for market forces to do something. So do we have 40 years in the story? The answer is "no," we don’t even have 10 or 20 years at this point. We are at peak oil. We're going to need to start figuring out right away how we are going to start moving to this natural gas play if that's what we want it to do, and we haven't started doing that. That's the story: not that we can't, but that we haven't done that so far.
David: The other side of the coin, of course – you've brought this up and I've heard other people discuss this, but isn't discussed very much – which is just sort of the cost of lifting the oil out of the ground and getting it to the market, is once you get to the point where it will cost you one barrel of oil to get of one barrel out of the ground, well the game's over. Where are we now in that basic setup?
Chris: You know, you can just look at anything you want in the news and understand that we are getting less energy back for our effort, so here's an example: Shell just announced this past – I think it was in June – they're going to build a liquefied natural gas facility that's going to float. It's going to be the largest floating manmade structure ever built. It has the same amount of steel as six aircraft carriers, and it's going to last 25 years, withstand hurricanes, is parked off the coast of Australia. They've got the project in the works. By the time you're floating the largest manmade object ever to take advantage of a remaining gas field, that tells you that we're not getting as much energy out of that gas field as we used to. First, embodied in this giant superstructure; second of all, it's liquefied natural gas. They use roughly half the energy content in the gas just to liquefy it. It's got to go to -256° Fahrenheit. There are all these technical reasons why we're getting less out of it. We can just look at that project and say, "Would Shell be doing that if there were higher returns, higher net energy projects that they could prosecute? And the answer is, "No." No, no, by the time you're seeing the largest manmade structure ever, it tells you something about where we are in the story and where we have less coming back than we used to.
David: That's mind-boggling. Well, you make the point, and you have made a very strong point that the technology involved in the Deepwater Horizon rig was more advanced than what goes into the space program, and the fact that they've gone to those extremes to try to access oil is a very good sign or indicator of just how desperate maybe the situation is becoming. But do you think there's a point in the future, do you see it coming where there is a broader recognition of this? I mean, you don't hear the politicians – well, you hear the politicians pontificating about how, you know, energy security and this, that, and the other thing, but there isn't any real friction. I mean, I once put together a compilation of clips from each president going back – I think I got it all the way back to Eisenhower – you know, talking about the need for America's energy independence and, you know, every single president all the way up to the present has said the same thing, but yet there's no real energy or any real political heat around doing something about it. Do you see that changing? Do you think things are reaching a tipping point where it's going to become so obvious to so many people that this is going to become a national priority?
Chris: Well, I think from the civilian side of government where, you know, the elected president, all of that, I truly believe in my heart of hearts that that branch is going to wait for some sort of crisis and then they will manage the crisis. I think that’s really suboptimal, but is probably the way we're going to go. On the military side, very interestingly, the joint operating environment task force – every year the four joint chiefs come together and they have this big planning study to look at all of our threats – and they actually are using peak oil as a threat scenario now. They call it a "liquid fuels emergency," and they're jumping up and down as hard as they can, waving their arms, going to conferences. I heard the rear admiral stand up and talk about this and said, "Look, we don’t understand why there's no traction for this on the civilian side. This is one of the most serious threats that we are facing. We can't operate our entire economy, our military. This is a very big national security threat." The German military came out with the same sort of assessment recently this past year. So the military, you know, people who are somehow unconstrained by the political realities who just care about the threats have peered in and said, "Oh, this is serious," right, so it's not even just the government isn't on this game right now. It is really, we have to ask why the civilian, elected side of the government seems to be ignoring this at this point in time.
David: Because they are incompetent?
Chris: Yes, or they can't find a way to get elected using this information or something is offing the story, but we shouldn't wait for them to figure out what this is before we decide how we want to respond.
David: So playing the devil's advocate from even in my relatively short lifetime on this planet, there has been a steady stream of books about, you know, these people talking about the global population explosion and it's going to take the world down and, you know, by 1985 we were going to be, you know, looking around for roots and berries and all this sort of thing, and so in your view – because it's not just energy, it is also the base metals are starting to wind down, the usage of base metals is making those deposits harder and harder to find, pretty much everything – so it's a natural resource, a real crunch, but why, you know, why isn't this just another one of those dystopian futures, you know, what's different in your theory, why are you so convinced that this is going to happen?
Chris: Well, something that we have today that we didn’t have in Malthus' time and in the late 1700s or even 20 years ago, is that we have got access to incredible datasets now, and I let the data, you know, really do the stories and the talking for me. So if tonight they discovered 600 gigabarrels, 600-billion-barrel find somewhere – you know, it turned out the arctic icecap was covering up like this big, giant lake of oil – I would change my story., But I've been on this story now for probably about six years, watching the data come in and every quarter I get access to really incredible production data and exploration discovery data and it is all confirming the same basic trend. And that says that we are really far along in the story, and the other piece around this is understanding how our economy works, understanding that we have had five full credit market doublings in only four decades, that if we want our future to look like the past – if we are going to have that expectation that things are going to work more or less as they have – we are making the implicit and even explicit assumption that our credit markets are going to double and double again. So that means we have to go from $52 to 104 trillion of credit in the next 10 years. Where are we going to spend that? What are our opportunities to even float that much credit? How could we justify it so that we could see how that credit would liquidate itself – that is, get itself paid back? You know, we can't just put that in importing more sweaters from China. What would we be putting that into? And that's where I'm struggling, to understand where we would find $50 trillion of investments that we could justify. And that just tells me that things are going to change, and that's my story. It is not this dystopian, "Oh my gosh, it's all over," David; this is about how things are going to shift and that's the main thrust of my argument. If you're expecting the future to look just like the past, I think you're going to be disappointed because we just can't expand things in the ways we expect and have been accustomed to, all of that.
David: So you've made a very – what I thought was a very insightful, profound statement at the end – that, having studied this as hard as you have and having really looked at it, you've sort of become okay with the scenario. In other words, you understand the scenario, you internalized it and made it – it helps sort of guide your life at this point. And so what if, if you were a, having gone through this whole process of thinking on your own, help our viewers take a shortcut: Where do you think they should be focused? Where do you think they should – how should they think about the world and about their investments that they may not be doing now?
Chris: Yes, great question, also a very complicated one. I wish – my number one hope in life is I could put this all in a pamphlet. There's a book that even there at the end, it's very complicated because local mileage is going to vary in this story – which community you're located in, which country you're located in, which assets you’ve decided to try and diversify into. The main thrust of the story is this: I truly have lost faith that our currencies are going to be managed towards anything but oblivion and the data all seems to confirm that. You know we had stimulus this, TARP that, QE1, QE2. There's more coming. We've got now the European Financial Stability Fund. All of these things say that we are going to pursue the same course of action that has always been pursued, which ultimately has a very high risk of the loss of value, if not the outright destruction of the currencies involved. And so once you hold that view, the question becomes, "How do I personally need to diversify?" And so I'm really counseling people if the pendulum swung from, you know, everybody being fully invested in things – the original landowners of once upon a time – to a real fascination with paper, we're swinging back; and so how do you invest in things? So this is where resources come into play. It might be actual farmland. It could be an investment in your own house so that it's more energy efficient so you're more resilient to rising energy prices. These are all kinds of things that I start moving people towards but everybody has to look at their personal situation and decide where do I want to live? How do I want to live? Who do I want to live with in this story and most people are just starting to wrestle with those questions.
David: You might not want to live in the far north.
Chris: You might not want to, yes, or you might not want to live in a really crowded area with too many people in it. These are choices that people are making right now.
David: Okay, all right, this has been helpful. And again, great speech, and thank you for being here.
Chris: Thank you; the pleasure is mine.