By ekamil CreativeCommons

When your self-worth goes up, your net worth goes up. : Mark Victor Hansen

Self-Worth is the New Net Worth:

A Conversation with Chris Martenson and Nate Hagens
Jed Diamond, Ph.D. has been a health-care professional for more than 40 years. He is the author of 9 books, including Looking for Love in All the Wrong Places, Male Menopause, The Irritable Male Syndrome, and Mr. Mean: Saving Your Relationship from the Irritable Male Syndrome . He offers counseling to men, women, and couples in his office in California or by phone with people throughout the U.S. and around the world. To receive a Free E-book on Mens Health and a free subscription to Jeds e-newsletter go to http://facebook.com/menalivenow. If you enjoy my articles, please subscribe. I write to everyone who joins my Scribd team. My new book, my 10th, on Energy Medicine for Men is due for publication in the fall, 2011 or spring 2012.

Below is the transcript for Nate Hagens: We're Not Facing A Shortage of Energy, But A Longage of Expectations Chris Martenson: Welcome to another ChrisMartenson.com podcast. I am, of course, your host, Chris Martenson, and today we have the distinct pleasure of talking with Nate Hagens, a well-known authority on global resource depletion. Until recently, he was lead editor of The Oil Drum, one of the most popular and still highly respected websites for the analysis and discussion and global energy supplies, and the future implications of the energy decline that we are facing. Nates presentations address the opportunities and constraints that we face in the transition away from fossil fuels. Hes appeared on PBS, BBC, and NPR, and lectured around the world. He holds a Masters Degree in Finance from the University of Chicago and recently completed his PhD in Natural Resources at the University of Vermont. Previously, he was President of Sanctuary Asset Management and a Vice-President at the investment firm Solomon Brothers and Lehman Brothers. I happen to know Nate from our connections through the Association for the Study of Peak Oil and Gas, or ASPO, where weve both been featured presenters and active participants. So, Nate, welcome, and glad you could be with us today. Nate Hagens: Thanks, Chris, glad to be here.

Chris Martenson: You know, I want to start with a little bit about Peak Oil, the idea that someday theres going to be incrementally less oil flowing from the ground to use as we wish. In your estimation and experience, where are we in the Peak Oil story? Nate Hagens: Well, there are a lot of details that people will argue about. The bottom line is that weve reached a level where supply cannot continue to keep up with demand increase. Weve been on a plateau for five or six years now, where oil supply has become inelastic: more demand, higher prices will not bring out more supply. And there are interesting sub-stories to that. For example, the EIA and the IEA, the data that they report show that we just recently hit an all-time high in oil production. If you include tar sand, biofuels, natural gas, plant liquids, etc., were around 88 million barrels a day. But if you look at some other data sources, like the JODI, the Joint Oil Database Initiative, that is a compilation of national governments reporting their own oil production, theres about a three to four million dollar difference in total production. So we dont really know the source of EIA and IEA. We assume its IHS CERA data, but theres a big gap there. And if you look at the JODI data, weve still peaked in 2006 and have not regained that peak. Now if youre just talking oil, both data sources agree that 2006 is still the peak of global oil production. Chris Martenson: Is that where you are? So in your estimation, conventional oil has peaked? I think thats in the rearview mirror, but youre now going out and saying all liquids that we would call oil; forget about the funny stuff out there, the ethanol and whatnot, but in terms of stuff that comes out of the ground we would call oil, weve peaked? Nate Hagens: Well, Ive stopped paying attention to that, Chris, because I dont think it really matters. I think Peak Oil is a constraint going forward, but its not the real driver on the energy side. Its that our marginal cost keeps going up for liquid fuels, which are basically the hemoglobin of global trade and global commerce, so thats relevant. But whether we have another million, or two million, or two million less, isnt the real story. Were not going to be able to meaningfully grow something that the entire world depends on, and so I think all this bickering about which month or which year is the highest is missing the point. And then Im sure, well probably touch on it later, the greater threat right now is not Peak Oil, but Peak Debt or Peak Credit, and thats the much more clear and present danger. But you mentioned ethanol, and there was a stat that came up today, I just wanted to

point it out. As of now, corn for food is the number two use of corn in this country. We now use more corn to create ethanol than we do for food. And we produce about a million barrels of ethanol a year. Each of those barrels, of course, has, because of the BTU content, a lot less energy than a barrel of oil, around 70%. So were using half of our corn supply to produce one million barrels of ethanol, when we use nineteen million barrels a day of oil. So its kind of a conversion of corn, water, soil, natural gas, and coal into liquid fuels in order to become less dependent. But its only a drop in the bucket relative to our total consumption. Chris Martenson: Right. So here we have this magic substance, its the hemoglobin of global trade, as you said, meaning its the carrier thats providing the oxygen, as it were, to have the global economy function. We will get to that Peak Debt connection in just a second. But this is a really important point to me, the idea that what we need is we need more oil or liquid fuels if we want to broaden it on a daily, yearly, monthly, whatever basis we want, than we did last year, day, month or whatever, because we want our economy to keep growing, and thats what we understand and know and love. In your estimation, though, we are now facing physical constraints that are going to prevent us from growing the supply of oil at the higher level. And on a more granular level, you used marginal cost of production, but that itself might be a proxy for increasing energy costs to go out and get energy. However we look at it, money [is] a great proxy for energy, so lets use that. Energys going to become more expensive going forward and theres going to be slightly less of it. Those are two pieces of the story, in your mind, from now stretching into the future. Nate Hagens: Yeah, thats right. And, you know, the main reason thats a problem is because our entire system is based on the incorrect assumption that energy, which underpins every single physical service transaction we have in this economy, is substitutable. You can substitute capital or labor for it. And in reality, thats not true. If you dont have energy, you dont have an economic transaction. So if it becomes either more expensive or unavailable, both of those have deleterious impacts to economic growth. And were kind of in what I call the biophysical gauntlet right now, which is that oil, weve found all the Beverly Hillbilly Oil 60 to 70 years ago that was bubbling right under the surface, and now we have to drill deeper, drill further offshore; create things that arent really oil and process them into oil, like tar sands and oil shale.

And all these things cost a lot more for the energy companies to produce. And society is reaching the point of being insolvent because of our claims and liabilities. And eventually we get to a point where the oil companies need higher and higher oil price in order to make a profit, but society can afford less and less. And at some point those two prices of oil cross and we have a real problem. You know, right now, the marginal barrel of oil costs between $70 and $90, so theres a little bit of a cushion in there now. But a lot of people say above a hundred dollar oil, it has significant economic headwinds. So at some point there, dollars dont become an accurate measure of our real natural resource balance sheet. And as you know, part of the tenets of biophysical economics is measuring our natural resource endowments in natural resource terms, themselves. For example, Energy Return On Investment (EROI) is how much energy it takes to get one unit of energy in our society. And 70, 80 years ago, we would invest one barrel of energy to get out a hundred barrels of oil, and that 100:1 ratio declined to 30:1 in the 1970s, and it was around 10:1 in the year 2000, and the EIA stopped producing data on how much energy it takes to get energy. So we can kind of interpolate it now, but its clearly under ten in single digits. And you eventually get to a point, even if oil is $100,000 dollars a barrel, or $1 million dollars a barrel, if it takes one barrel of oil to get out barrel of oil, youre kind of out of gas at that point. Chris Martenson: So the energy return on energy invested, or EROI, has been declining steadily. I want to just back up for a second. So here we are, if we scan the papers this morning, you know, weve got a debt-ceiling sort of mini-drama going on in D.C. Weve got Italys bond spreads blowing out. Greece is clearly in trouble. Everybodys familiar with the whole Portugal/Ireland story. Japan is in a pickle. China looks like its getting there. And as we scan across the landscape, we cant really find any corner of the globe at this point, at least in all the advanced economies, where things look like theyre working as they used to. So if we just have our economic hats on, I believe this is a very, very confusing period of time. I know our economic high priests and priestesses are waiving their magic money wands wondering, I bet, why isnt this working? You know, where is unemployment? Why is it stuck there? Whereas, if we step over here into the energy world and put our EROI hats on and we say look, this is perfectly predictable, I think.

When you have less available net energy, these are the sorts of problems you might experience and expect. Does that make sense to you, or is that even remotely how you see it? Nate Hagens: It makes absolute sense. We need energy to create our physical realities and create our economic growth and trade for transport, everything. If the energy sector requires a greater and greater chunk of that energy, we have less available for the rest of discretionary society. And once that constraint exists and even accelerates, you need to respond to that. And the way we responded to that was increasing our debt, which, of course, as you know, is pretty much created by a pen stroke. So that can temporarily offset energy shortages at a cost of a steeper decline, because debt actually functions as a spacial and temporal reallocater of resources, away from the periphery towards the center and away from the future towards the present. So theres a very subtle but important relationship between debt and energy. And the problem is, is that most of, as you term, economic priests and priestesses, dont have training in the biophysical economic world, and they treat everything in monetary terms. And we just throw more money at the problem, and itll go away. Well, our energy, and especially our net energy story, is getting worse. So were increasing our money supply while our energy supply is declining, and, yeah, thats not a good situation. Chris Martenson: All right, so biophysical ignorance is one way that maybe the classical economists and economy theory got it wrong. Are there other ways? Nate Hagens: Well, theres a lot of ways, theres a lot of problems with mainstream economic theory. On the micro side, theres not a real good differentiation between needs and wants. If you look at the evolved architecture of the human brain, you know, we evolved in a period of scarcity. And the things that give us pleasure, happiness may not be the right word, but pleasure, satisfaction, etc., those things are highjacked in the modern era. And utility -- which is what economists measure as something thats good or positive or desirable -- the utility of a five hundred pound guy eating another pizza is equivalent to a starving child getting some rice. So theres something kind of messed up in that space.

I think regular economic theory also gets the debt side wrong. They assume that debt is a neutral transfer between Party A and Party B, its just Party As deferring consumption to the future and Party B will one day be able to consume. But in reality, if you look at energy as being non-substitutable and it being impossible to grow our economies forever, then that relationship in debt breaks down. And it turns out that debt is not a neutral transfer. I know that you are also a student of E.F. Schumacher. In Small is Beautiful, he talks about what real wealth is: Wealth is our primary capital; our trees and our rivers. And secondary capital is what we do with that; turn things into lumber and tractors, etc. And then tertiary capital is stocks and bonds and derivatives of that. So I think we have focused too much on the tertiary measures of our wealth, when theyre really just markers. And these financial markers have far outpaced our real capital. And that is kind of the elephant in the room, in our conversations about the economy in the future, that people are ignoring. They just assume that the dollars are the real markers. Chris Martenson: Right. I noticed, too, that you know, our money is also. Its an agreement between ourselves. We have an agreement: I have lots of paper in this room, but you and I might agree that only the stuff in my wallet has this utility, right? And heres one of the things that I think is really sort of a characteristic of our time. I certainly pick this up in my work: I notice that a lot of people are very nervous. You wouldnt think people would be this nervous with the GDP allegedly growing at 2.8% or whatever theyre claiming at this point. This nervousness, I think, comes from the idea that this contract is breaking down. There is something really fundamentally wrong with this story that most people are picking up and that politicians, bless their hearts, and monetary authorities, bless their hearts, are missing almost entirely at this point in time, which that there is something with the model. And the old model was, were going to grow, grow, grow. If you look at Bernankes recent testimony to Congress and to the Senate, if you look at the most recent statements from Obama or out of the EU, all of them are talking about, we want to get to a resumption of growth right away, as fast as possible. We want jobs to grow. Who can be against that? We want trade to grow. We want consumption to grow. We want all these things to grow. And more and more people, I found, have started to look at that story and say wait a minute, theres something broken in that story. And you dont have to

think about it all that long, I dont believe, these days, to really understand the flaw in that particular model. And we have now lots of evidence that there are flaws in this model. First: A, do you see it that way? B, if thats true, why is it that people like you and I are talking about it, and thousands, if not millions, of other people are talking about it, and we cant even get to square zero in terms of public acknowledgment at what we would call the highest levels? Nate Hagens: Well, first of all, yes, I do agree that that is the case. I think we have peaked globally in growth. Certainly, in real terms. Its possible that in 2013 or such we see a nominal increase in global output, but I doubt it. I think the problem - well theres a lot of problems - but one of the main ones is if it was a 5% or 10% belt-tightening or switch that needed to happen, you would see more politicians go in that direction. But its such a huge change, the implications of the end of growth and what that means for our institutions and the way that our society is organized. The politicians now would be thrown out of office because people, the average American is not educated to understand these things, so its a very threatening story. I mean, its very difficult to grasp that the biggest threat to the American way of life is the American way of life. And thats kind of a profound crossroads that were at. While the world is advocating that Chinese and Pakistanis should aspire to an American footprint, it probably makes more sense for Americans to aspire to a Chinese or Pakistani footprint - but try selling that. So I think the politicians and the average person -- and there are evolutionary, well-understood reasons for this -- we are not going to respond to this crisis until the crisis is truly upon us. And then, given the lead time and the ten or twenty years we need to really rejigger the infrastructure, its not going to be enough time. Chris Martenson: Not going to be enough time to make a smooth, disruption-free Nate Hagens: Not a smooth transition, correct. Chris Martenson: Right. So to me it really looks like a catch-22 at this point in time. We cant really acknowledge the problem until its a problem. By the time we do that, it might be too late to really undertake a smooth transition.

So I really want to drive home this point, though, about the connection between energy and, lets say, finance. So lets imagine for the moment, Nate, that you owned all the bonds in the world. Somehow they all came to you, and you understand that growth is no longer possible. What do you think the value of your bond portfolio would be, before that moment of recognition, and after? Nate Hagens: Well, I think there would be three timeframes. There would be before, and they would be worth a hundred, or par. And immediately after, the end of growth means that were going to have a deflationary spiral, because things are going to unravel. So in deflation, bond prices go up, because interest rates are going to go down. But ultimately, theyre going to be worth zero, because people arent going to be able to pay them back. Theres two issues: We have a huge amount of aggregate claims on the future. My research estimates, you add up all of the aggregate debt in the OECD, its around $250 trillion, and thats not including financial derivatives where J.P. Morgan owes Goldman-Sach some hundred billion dollar swap on currencies. Excluding that, its around two hundred and fifty trillion. We are transitioning from a period of understanding we will never be able to pay that back - I think a lot of people understand that - to a period where we will not even be able to service that debt. So thats the theater thats going on right now. As far as what is the value of all the bonds in the world if I owned them? Its hard to answer that without knowing what the objective is and what trajectory the world goes on. I could give you multiple answers, but ultimately theyre going to be worth less. Weve got a giant haircut coming our way. It could be as little as 50%, as much as a 100%, and I would say between 70% and 90% percent in the next decade. Chris Martenson: So its sort of like Templetons view on housing from a few years back. It sounded crazy at the time, but the trajectory is still good for him to be potentially right on the housing side. How about for stocks, then? How much of say the total stock index fund? How much of that value is growth a component of?

Nate Hagens: Well, growth is a component of everything in our system. So Im not necessarily calling for a stock-market crash in the next decade, but I am calling for within the decade we probably wont have a stock market. Thats a scary thing to contemplate, but this entire system is based on more every year, and weve extended the system by a decade or more by little bells and whistles and allowing people to buy houses with no money down and the repeal of Glass-Steagall. And since 2008, the crash in private and household credit has been made up by government stepping in and providing 11% of our GDP just from deficit spending. And that bullet has now been spent. So the whole thing starts to unravel once theyve spent all the bullets they have. And I dont know that it really matters, really; stocks go down 10% or 50% or 100%, we have to restructure the way that we think about society. Competing for nominal, digital wealth is going to go away as the main cultural objective. Chris Martenson: And would that conspicuous consumption, does that get rethought, or do we just keep that up to the bitter end? Is that a biological function? Nate Hagens: Conspicuous consumption is part of nature. There are displays in the wild of ornate horns and plumage, etc., because those confer special advantages in mating, via sexual selection, etc., so some elements, some level of conspicuous consumption, will always be part of our species, our culture. But the way its promoted now, where we just are on this consumption treadmill, where we buy more and more things and dont feel satisfied from the marginal purchase, I think that will go away. When the amount of novelty and extraneous products in the shelves kind of go away and people are more concerned about how their community and their friends and family are going to have more basic needs going forward than frivolous things. I think thatll happen naturally. Chris Martenson: And this is going to be part of why I think the transition is going to be difficult for a lot of people. Even though personally I cut my standard of living in half and I have a higher quality of life, and I did that very consciously over time, and Im thrilled with it. I know other people, if its forced upon them, however - our living standards fall, and they fall because theres a debt problem or an energy problem, or the combination of both, whatever, some confluence of events - that theyll feel and experience this as a loss. And I was talking with Dan Ariely and he explained that loss is something is something that we are wired, biologically wired, to avoid. So

when I summarize all this and I put it into a spot, I say okay, so we have this physical constraint thats coming because of Peak Oil. Theres nothing were going to do about it. We cant out-clever that. Its just a constraint, its a limitation, there it is. We could manage it well or we can manage it poorly, but its there. We have a political system thats not really geared for the magnitude of the change that were seeing, so the most likely outcome is that were going to wait, we as a culture are going to wait until were forced to deal with this. Thats probably going to come with disruptions. So my question here is, given all of that: What do you see as the most likely outcome, and then what do people do, what do communities do to prepare before we get to things like maybe, you know, big picture, what should the world or our country do? If we could start at the sort of the individual level, youve been facing this for a long time, youve learned a lot of things. How are you facing this? Nate Hagens: Well one of the things that, you know, as you know I was very active in The Oil Drum for many years, because I just wanted the average person to be educated that look, our situation is based on physical stuff, and that picture is changing now. And I thought if more people would understand that, they would change on their own, because they had some ah ha! moments. I now think that trying to teach against the destruction of the planet, you know, for example, Lester Brown or Al Gore, is actually teaching against the drive for status, given our current environmental cues of 'more is better.' So its like trying to teach teenage girls to dress as ugly as possible. It just doesnt work, and its been a waste of trillions of dollars. Chris Martenson: Uh-huh. Nate Hagens: I think what you just said about yourself, knowing that austerity is coming, whether its imposed by the markets in some sort of disruptive currency trade event or imposed by increased nationalization and the loss of freedoms - austerity is coming. So one thing, and this sounds radical, but one thing that you can do as an individual is kind of self-impose austerity. And that doesnt mean turn into a monk or anything like that, but do things lower on the footprint meter and, you know, bike instead of take your car, walk instead of drive, eat local, dont use as much technology, be more psychologically resilient to lower consumption. And its actually kind of fun, and Ive done it myself. But you and I have advantages that a lot of people dont have. We have money in the bank and have had successful careers, and not everyone can do that. But I do think that really, and this is

kind of counter-intuitive to what we talked about earlier, but were not really facing a shortage of energy, were facing a longage of expectations. And the sooner that we as individuals or a nation recognize that the future is going to be much lower consumption than today and prepare for that, that psychological resilience is going to be really important, because if no one is psychologically prepared, people are going to freak out when some of these freedoms start to go away. Chris Martenson: Hmm. Not facing a shortage of energy, a longage of expectations; an expectation that the future will look just like the present, only more? Nate Hagens: Well, yeah, well, not only that. Well, look, we consume, the average American, around 230,000 kilocalories a day of energy. The body itself consumes about 2,500 to 3,000 of those, endosmotically, within the body. So exosmotically, outside of the body, we consume 99% of our energy footprint. So if Peak Oil is upon us, or any issue with coal or natural gas, or the main fossil pixie dust that has subsidized our lifestyle for the last century, if that stuff declines twenty or thirty or even forty percent, its not like were literally out of calorie availability. Its just that our system is built on all this decadence and industry and trade and cross border transfers; it has all been built on a model that cant continue. Whats going to break first is peoples expectations of what they own, the digits in the bank, and all of the financial claims. But those are just digits, theyre abstract digits. The day that a financial system would be disrupted, nothing happens physically. So I think if we drop our energy consumption quite a bit, nothing has to change other than our supply chains and the way that goods and medicine and water and sanitation and all that get to the cities and towns and states. That has to be deeply thought about on a national level. But Im optimistic if we were sitting here and the average American used 10,000 calories a day of total energy, and we needed 3,000 for our bodily functions to continue, that would be a real problem, because there wasnt much extra. But we have a huge amount of energy relative to what we need. So I think there are two main things that need to happen - and of course, individuals can play a role in this - but one is we need to design some sort of future system that is an accurate barometer of what we really have on our natural capital balance sheets, relative to what we really need on our human behavior balance sheets. People are working on both sides of that.

Number two is we need some sort of bridge, some sort of mitigation towards a financial currency trade disruption, which very few people are working on. The fact is that a large percentage of our economic output globally is traded: If theres some problem with the euro or the yen or the pound or the dollar, how does that stuff continue to get shipped every day, along with all the components and everything else that we need? In my discussions, very few people are looking at that. And so on a macro level, people need to start focusing on how supply chains look and what are ways around our current system so that we can guarantee at least basic necessity-type things to continue to reach our shores and be processed, etc. I actually think Washington, among other mistakes, in pursuing the import substitution and Washington consensus policies of the last couple of decades, they actually were promoting to other countries like Ecuador and Africa to have imported substitutions where they actually were dependant on international trade. So these local regional models arent really in existence; they dont exist. So I think yes, its healthier for us to eat local food, local and regionally sourced, but it's actually the resiliency and redundancy that comes from a local and regionally sourced model that is going to play a big role in the future, because its a lot easier to get parts and tools in Massachusetts from New York than it is from Korea. Chris Martenson: You know, Ive long noted that theres a, theres almost like a slider, you can push it back and forth. And on one side is resiliency and on the other side is cost effectiveness. So, you know, we dont have a lot of redundancy in our inventories, which is lean and mean and thats great and, you know, our food is really cheap right now. At the same time, theres very little resiliency or redundancy built into that, let alone leave sustainability and whether its a thousand-year plan or not aside. Nate Hagens: We havent needed resilience or redundancy; weve needed efficiency and profit. Chris Martenson: Uh-huh Nate Hagens: And so thats why this whole, what is the carrot? What are we driving for? What is the goal of a society and a goal of a culture? And it has been, for quite a while, profit that is supposed to trickle down. Once the assumption of growth goes away, then you have to start looking at different objectives, and thats the gorilla in the room that people are afraid to voice.

And I think if they understood the energy-economic link better, they might start to come to that conclusion. Chris Martenson: Thats very well said. And thats exactly where I am on this story, is big transformation, big shift is happening. But ultimately, you know, it comes down to, let me pin it on money, our money system. There are a lot of forms of money out there. We happen to have a debt-based money system, and by we, I mean the whole world. So when you have a debt based money system, its not true to say that fiat money is not backed by anything; its backed by debt. And its backed by the debt that is attached to the people of the nation. So in our case, you and I, our dollar bills physically are backed by the full faith and credit of the U.S. Government, which really means the ability of the U.S. taxpayer to pay back the outstanding debts, which are Treasury obligations. Thats the little loop that gives our money value, because ultimately you and I have productive output and that can be attached. So this is our distribution system. The problem is, is that, of course, that with debt-based money systems, you know, they are exponential by design. And I understand the theories that say they dont have to be, technically. There can be immaculate flows of interest and stuff like that. But in truth, when you look at a five- or a six-decade-long graph of either debt or money and you put a curve fit on it, its perfectly exponential, its just got an awesome .99 coefficient of determination, it looks great, right? So we have this exponential money system and its careening headlong into a physical limitation. So here we have this system where we clearly can see we have an exponential money system, those claims on the future. All of that is what were just desperately trying to sustain - the status quo, sustain the unsustainable; I get it. But I have personally lost any faith in the idea that were going to be able to do that for a whole lot longer. If my daughter lives to be the same age as my grandfather, she will die in the year 2094. Think of the number of things that will have been past peak by 2094: everything that I can possibly chart or look at at this point in time. So its a, were really facing a really profound moment in not just U.S. history, but I think human history, which is pretty extraordinary. How do we navigate that? What, at the highest level, what do we need to change to get our minds around the fact that theres a new narrative on the table? Nate Hagens: Well, this may not sound so cheery, but I really dont think were going to change any peoples minds before the crisis happens. I just

think the political drive and the people in power now are so linked to the current system. So that leaves us with, we have to build lifeboats of some sort, either by country or institution or region or individual, and Ive changed my mind on that thinking a little bit. I think its great. I have a big garden here. I grow thirty percent of my own food, but I realize that isnt enough. I do it because I enjoy it and it takes my brain down a notch from all the Internet stuff that Ive done. But gardens arent going to be the answer, and local food isnt the answer. We truly are going to need some centralized government direction on what happens under these various directives. And I dont think its going to happen publicly, I just think some of our government entities need to start doing scenario analysis, and quickly, because I think very small efforts can pay off large dividends in making people more prepared. I know on reasonably good authority that the Federal Reserve and the Central Bank, one of the leading players in this story, they use 2% growth going forward as their base case. And then they have small deviations from that scenario, a half percent in either direction, as their sensitivity analysis. There is no group at the Fed looking at what happens if growth stops, or what happens if we have a period of negative growth; they dont even analyze that. So I think the simple answer to your question is, government authorities need to take this more seriously. And I am skeptical that thats going to happen, given my own efforts to try and make that happen. Ultimately, Chris, the answer to your question is: What do we want? What do we want from our society and what do we want from our culture? And kind of this pecuniary hedonic treadmill has been found wanting. And this is why I got on this path, you know, a decade ago. You know, I used to manage wealthy families money at Solomon Brothers and Lehman Brothers, and I would see guys worth a hundred million dollars, and all they wanted to do was have two hundred million, and when they had two hundred million, they wanted to have four hundred million. And they werent any happier than the clerks that were processing their trades. And I think since you and I know that the majority of that wealth is probably going away, that stuff is just markers for what we really value. And so I think in the next ten or twenty years we, as a species, as well as a culture are going to go through a big self-examination of what really matters. And how do we construct a society where we can get the evolutionary neurotransmitters, I like to say, that give us the feelings of happiness,

success, what have you, while consuming lower on the food chain and the resource throughput. Wealth inequality is going to go away automatically, once we devalue some of this debt. But I really do think that wealth amplitude is going to go away in our evolutionary environment. You know, a million years ago on the Pleistocene, you could maybe have one person in the tribe might have ten times as much status as the lowest person. And now we have CEOs, etc, making a million times more than the lowest paid worker, and examples like that. And so I think that isnt the answer to our problems. But that is also something that will have to be addressed, some people have a huge excess relative to the lowest and the average. And youre seeing that happen, right? I mean, QE2 has been successful in raising asset prices, but its been a failure in the real economy, and the middle and lower classes havent really seen any benefit at all from that. But the top five or ten percent seem to think that things are going okay. And that top five percent, whether we like it or not, are the people that we have to convince to make major changes in our infrastructure and our cultural goals. Chris Martenson: Well, this is one of the prime reasons why for years Ive been telling people, yes, deflation is a possibility, but expect inflation. Because deflation directly destroys the holdings of the very top end of society. Whereas inflation actually tends to enrich them through the process of being first at the trough, theres always a little seniorage in there for government. So inflation is preferred on all sorts of dimensions, and thats why I would tend to expect it. Not because its mathematically right or because it makes more financial sense or economic sense, but it simply makes more human sense. And so if we put all this into a spot, I see what youre saying is look, the die is cast. We have a prevailing system of organization around our economy, our institutions, our culture, that is geared towards a way of existence which is out of tune fundamentally with the physical world. And so were at the early edges of that story, were starting to feel the disruption and the, you know, the tearing of the fabric of the old story, and that theres going to be probably, most likely, given everything, disruptions as we go forward. Lets imagine you are one of the people, and there are people out there who are actively changing their lives in response to this story. So youre one of them, youve been working, youve got a little 401K, youre still in your job,

you dont quite know how to unplug from all of that. Maybe you dont have a place to toss in a big garden. What do you do? Nate Hagens: Well, this is, to be honest, and since youre a friend of mine and weve known each other for a while, this is why Ive stopped giving public talks on these issues, because its very difficult to connect all the dots and tell a coherent story, and then close with this is whats coming, without some positive way of action. I really sense, Chris, that there are a lot of people, you know, the average person I went to high school with, that we e-mail from time to time. They know that somethings wrong. They would do something if they could, but they dont know what to do. And I think thats what I was saying before. We really need government direction on the macro picture. And the things that we can do as individuals, yes, we can get to know our neighbors, increase social capital, increase our health. I mean, Ive lost thirty-five pounds in the last year and a half because Ive massively increased my exercise, and I feel a lot better because of it. If you change your behavior with the expectation and confidence that this system is probably going to be disrupted at some point, I think you are a lot more resilient, and then more people around you are going to be more resilient. And its impossible to predict how things are going to play out in the next decade. I think, you know, trying to have a basement full of stockpiled gold and silver and ammo and backups on backups will drive you crazy, because you can never diversify enough to have everything you need. So I think knowing your neighbors, and knowing some skills, and just being prepared for less each year, instead of more each year. It kind of sounds like hokey advice, but I think its good advice. And I think there needs to be certain ambassadors that get into government and hit them upside the head and say look, there needs to be plans made, even if you think what Im talking about is five percent likely; you know, I think its forty percent likely. But even if you think theres a few percentage points chance of this happening, we need to look at mitigation strategies. Chris Martenson: Absolutely. If you said, Chris, theres a four percent chance that the plane you get on is going to fall out of the sky and crash, I wouldnt get on it. Nate Hagens: Right, exactly.

Chris Martenson: Not a chance in the world. I dont think anybody would. And so, yeah, and its funny. We have very similar probability weightings, because I, too, have no idea how things are going to turn or when. Thats the nature of complex systems; theyre inherently unpredictable in terms of what or how much. But still, you can catalog the pressures and the risks, and so thats some of what weve been talking about today. And I share a lot of your views, that the die is cast. And it seems like there are, if it isnt willful ignorance, its just ignorance of what truly is the driver here. The high priestesses and priests of our monetary temples were trained, and very well trained, but not in all the right things for this particular juncture. So thats why I really advise people to go to places The Oil Drum, like my website, like other websites, that are really wrestling with what I might call reality. Which is the signs are everywhere, whether you want to look at collapsing fish stocks, or if you just Google soil, soil loss, or water aquifers; Google that, take a look. Theyre everywhere, the signs are everywhere; that were at, we have some sort of a moment here to take stock of who we are, what were doing, and where wed like to go. Im with you. I want to live a life full of purpose, thats what I want; my highest goal. And whether I need a lot of money to do that or not, or status to do that or not, is Ive lost connection with that thread of things. And so, yeah, I have a big garden. Ive lost a bunch of weight myself. All of these things are, actually, I find them to be very positive in my own life. So thats what I can tell people when I stand up before them, and say, listen, I jumped off, personally threw myself off the American dream bandwagon; (a) didnt die; (b) I think Im better off for it. Let me explain how and why. And for many people thats a real shock, you know, to find out that you can do that and keep moving, and actually consider yourself better off; its interesting. Nate Hagens: I think theres huge leverage in that story. But the problem is, is that the environmental cues are still to have more money. And more moneys going to protect you. And I think once that kind of illusion goes away, that moneys just a marker and its not an accurate marker, and that self-worth is becoming the new net worth. Then stories like yours are going to have a lot more traction, where people are just going to kind of internalize the message. Right now, its watching a little show, and then going back and getting all the environmental signals from your neighbors and your wife and your boss that what that Chris guy said, you know, that doesnt really apply

right now. So I think were within a year or two of people really responding to that sort of message. And I did the same thing. I used to make a lot of money on Wall Street. And I spent most of it, of course. In the last few years, Ive a graduate school salary of twenty grand, and Ive probably never been happier in my life. I live frugally. I live in a very small house. And so it can be done. Of course, the, theres a secret in there, which is a little obscure, but I used to be surrounded by millionaires. And now Im surrounded by farmers. And its, the status of the people around you. I think it was H.L. Mencken who said, A rich man is someone who makes a hundred dollars more than his wifes sisters husband. Chris Martenson: Hmm. Nate Hagens: And I think its the cues of competing for whatever gives us status that allows us to feel satisfied and our purpose achieved. And right now, Im not surrounded by these millionaire, stock broker, money managers, so I dont feel that pull that Im not doing enough or making enough type of reaction. Chris Martenson: Great. I like that, the idea that our self-worth will become our new net worth. And thats probably, maybe were a few years away from that being recognized, but certainly I think theres enough evidence to say were somewhere on that trajectory as we go forward. Nate Hagens: Well, it all, you know, it ultimately will come down to energy, right? Chris Martenson: Yep. Nate Hagens: I mean, energys what we have to budget and spend, and dollars are just who control the energy for now. Chris Martenson: Uh-huh. Nate Hagens: But once it just comes back down to physical things, you cant have a million times more oil than your neighbor, you know, it just cant work that way. So I think theres going to be a natural amplitude and wealth is going to disappear relatively soon.

Chris Martenson: Uh-huh. Fascinating, really great; I appreciate your time. Any closing words for us today? Nate Hagens: No. Just, I think its safe to say for a couple of generations, weve been observers of history and were about to be participants again. And everyone can play a role, or not. And I think things could be probably a lot better than we fear. But just be prepared and start to pay attention. Chris Martenson: Be prepared and start, and continue to pay attention. Well thank you, very much, Nate. Weve been talking with Nate Hagens, former editor of The Oil Drum, and I am Chris Martenson. Thank you for listening today, and if you want to find out more, you could either go to theoildrum.com to find out more about energy and energy issues, or you can go to my own site, at chrismartenson.com. And its just been my pleasure talking with you, Nate. Nate Hagens: Thanks, Chris.

Note: Listeners interested in the conclusions expressed within this interview will also want to read Chris' recent report on Past Peak Oil - Why Time is Now Short, which takes a deep dive into the data behind the supply and demand imbalances in the global market for oil.