The Reason Our Standard of Living Will Fall

By: Tom Chatham

The prosperity we once knew as a nation was made possible because of cheap oil. When the EROI, Energy Returned On Invested, was at 30/1 we had unprecedented prosperity. The EROI is now falling below 10/1 and is taking prosperity with it. The EROI is the amount of energy we expend to get energy, in this case oil, out of the ground. We are getting 10 units of energy for every unit we expend to get it. Shale oil production results in 5 units of energy for every unit we expend.

This matters because everything we use depends on cheap energy to maintain the status quo. An EROI of 10/1 is necessary to maintain our current standard of living. The Hills Group project oil will drop to $11.76 by 2020. This may sound good on the surface but cheap oil will not mean much if you have no job and no money to buy it. As the next depression sets in many more people will lose their job and as a result prices will collapse. They project by 2020 we will have 75% fewer gas stations as a result of collapsing oil.

Today most of our population lives in the city. When jobs see their final collapse those people will have no way to survive. Living in the city requires stuff being brought in from other places. Those living in the city must pay for this stuff with the pay they earn. No jobs mean no pay and no goods.

During the last great depression many city dwellers had family in the country to move back in with to stay fed but most city dwellers today are several generations removed from the country life and no longer have living family members in the country to move in with.

Many of the farms that were left to city dwelling children after the parents died were sold and the money either spent or put into paper assets for retirement. When those paper assets evaporate those people will have nothing to fall back on.

I have said before that when this next depression hits it will devastate everyone and the only way people will be able to get by is if they produce most of their basic goods themselves. This will require a small farm and a family to help run it.

The U.S labor department has reported that productivity has declined for the third straight quarter. The real hourly wage increase reported in the first quarter at 4.2% has been revised to a decrease of .4%. GDP growth annualized for the first two quarters is 1%. S&P 500 companies are reporting declining earnings for the fifth quarter in a row. Economic growth is at its weakest rate since 1949. Gold is up 25% this year so far. All of these metrics are indicative of a stagnant or declining economy at a time when we are told everything is doing great.

The massive amount of money being printed is the only thing holding the economy in place right now but we are now moving beyond the point where that is even effective. From here on out more money will only cause more damage and it will compound the effects when the economy finally fails in earnest. Those that do not see this train wreck coming will still be sitting calmly as everything falls apart around them. They will be lucky to survive the impact and will be totally helpless in the days following. Those that see the danger will have gotten off a long way back and will be in a better position to help themselves and their family.

It is good to help others but you can only do so after you have taken steps to help yourself. The carnage we are about to see in world markets will affect everyone in some way. The best way to help is to understand what is coming and be prepared to deal with the realities that will follow. Global markets will revert back to local markets and those prepared for these changes will survive the initial collapse and thrive in the aftermath.

You can read more about EROI at


Posted on August 11, 2016, in Economics, Preparedness and tagged , , . Bookmark the permalink. 3 Comments.

  1. Makes sense, and explains a lot of what one observes. I’ve felt for a long time we (in this country) live a life that is only made possible by phony money, and the acceptance of it as money, but tying lower return on energy into the picture makes a good point. As energy returns goes down, phony money hides that fact.

    When you look at how many people live based on support payments from printed money (from social security to EBT to whatever), then consider how many more live based on non-productive, paper pushing “jobs”, again from an abundance of artificial money, once that source dries up, there is going to be a lot of chaos. People will come to value real production (food, energy, materials, etc) for it’s true worth, and the folks that produce nothing will get nothing. Simply being able to breathe (or push paper, or Facebook) is not going to be an asset that anyone producing will be willing to produce FOR.

    It will be interesting to watch the price of oil to see if this argument plays out. I had assumed retreat from 100+/barrel was due to the temporary increase in supply from shale oil, plus the producers of easier oil (like the Saudi’s) were willing to sell cheaper to try to eliminate competition….hence we had a gut in supply, along with some lower use due to the fact we really are in a recession.

    I thought that glut was truly temporary, since most of it was produced with massive debt on the part of oil companies, and not sustainable, especially in the face of markets flooded with “easy” oil. And once that debt bankrupted those companies, the ‘easy’ oil producers would simply jack the price back well above 100.

    BUT if the author is correct, we’ll never see 100 again, and will more likely see 20….or less. That make the decision to hold real money (gold/silver) look even better, as the gold to oil price should increase in favor of gold.

  2. We are retired and people our age whose parents then sold farms and/or inherited money, stocks, etc, took the money and bought more stocks and various bonds and are living off the interest and dividends like us along with a 401k and ss. These investments have raised our standard of living, yet muni bond interest has dropped some. Gov could outlaw gold and silver since tyranny will be type of gov. we’ll get if and when this all happens which I have been reading and hearing about since the late 70’s (talk radio on shortwave receivers, books, newsletters, etc.) Anyway, many of us cannot figure out why gasoline is so cheap right now if oil production is down. I will sell oil stocks #COP and Shell oil soon as shares go higher, put in a “stop loss” to sell and still waiting. Informed people near me (in a smaller city) don’t have interest in forming a bartering group, and are not preparing enough either.

  3. For the govt to outlaw gold and silver would be to admit the value of them. Nothing like making something illegal to raise the price of it. Just like the “roaring 20’s” made millions for illegal alcohol, and the ‘war on drugs’ has made billions for the drug cartels, a ban on metals would simply move the market underground and raise the value. Let them have at it. Surely a last gasp, desperation move.

%d bloggers like this: