Summary page:

• In this report, the fifth in the Tullett Prebon Strategy Insights series, we set out our core thesis, which is that the global economy is in the grip of a forest of dangerous financial and non-financial exponentials.

• As Fig. 1 illustrates, a series of key indicators – including population growth, energy consumption, cumulative inflation and the money supply – all appear to have turned into exponential ‘hockey-stick’ curves.

• Amongst the non-financial indicators, there are reasons to fear that exponential trends in population growth and energy consumption may not be sustainable, because both may be heading for practicality constraints. Meanwhile, the intrinsic values of the principal currencies (including the dollar, the euro and sterling) may be threatened by escalating debt, by dangerously rapid expansion in the money supply, and by continuing deteriorations in purchasing power.

• This report has been reinforced by the thinking of Crash Course author Chris Martenson, whose interpretation uncannily parallels our own. Amongst the many thought-provoking aspects of Crash Course, perhaps the most important is the identification of the parallel trajectories of the financial and resource exponentials discussed in this report.

• We conclude that the ‘forest of exponentials’ is indeed highly dangerous, particularly because it is neither properly understood, effectively calibrated or coherently managed.

• In particular, we identify an urgent need to foster an understanding of energy returns on energy invested (EROEI), and to develop a universal system of measurement and calibration.

• Ultimately, the economy is an energy-driven construct, yet the vital concept of energy returns is woefully misunderstood.