Perfect Storm – energy, finance and the end of growth

SOUTHAMPTON, U.K. - June 18, 2013 - PRLog -- Perfect Storm – energy, finance and the end of growth

London, New York, Singapore, 21 January, 2013: More than 200 years of economic

expansion may be drawing to a close, says a new report from inter-dealer broker Tullett

Prebon.

The global economy is facing a lethal confluence of four critical factors – the fallout from the

biggest debt bubble in history; a disastrous experiment with globalisation; massaging of data

to the point where economic trends are obscured; and the approach of an energy-returns

cliff-edge - explains Dr Tim Morgan, Global Head of Research at Tullett Prebon in

Perfect Storm – energy, finance and the end of growth.

“Combined, these factors have started to throw more than two centuries of economic

expansion into reverse,” says Dr Morgan. “If the energy surplus ratio continues to decline as

it has been, the economy as we know it is finished.”

The unwinding of the ‘energy dynamic’ which makes growth possible is the most important of

the four critical trends identified in the 84-page study. In 1990 it took one unit of energy to

extract 40. Today the ratio is barely 17:1 and it is set to pass the critical 10:1 point in the

coming decade. As our ability to substitute cheap energy for human effort declines, the

foundations of the economy are undermined.

This profound and irreversible trend combines with three superimposed effects. The first is

the bursting of the ‘credit super-cycle’ a three-decades-long borrowing binge that created the

biggest bubble in economic history. In 1980, total debts of American businesses, individuals

and government were 168% of GDP, little higher than in 1945, the study shows. But by 2009

that had soared to 381%. The massive escalation in Western indebtedness is one amongst

a host of indicators of “a state of mind which has elevated immediate consumption over

prudence throughout much of the world,” says the study. Short-term thinking is blinding us to

critical longer-term risks.

As governments wrestle with the fall-out from the 2008 financial crisis “a dire chapter of

recklessness is poised to end in money-printing, hyperinflation and collapse,” Dr Morgan

predicts.

Globalisation, meanwhile, has proven a “vast folly” for the West, the report argues.

Outsourcing manufacturing to emerging countries enabled companies to boost profits but

hollowed-out the Western economies. The process of globalization has distorted the normal

relationships between production, consumption and debt beyond the point of sustainability,

the report says. “The West is in deep (and perhaps irreversible) trouble because it has

consumed more, just as it has produced less.”

Meanwhile, data distortion obscures the scale of the crisis. Decades of methodological

changes have clearly left US inflation understated, exaggerating economic growth and

masking the scale of unemployment. Fiscal data is often distorted too, says the Tullett

Prebon study, citing evidence from the International Monetary Fund and elsewhere to show

that many governments have used accounting devices to understate their borrowings. In

2010, for example, though UK government debt was 69% of Gross Domestic Product, adding civil service pensions and other commitments took total liabilities to 173%, the report

says.

Will the economy really unravel and can we do anything about it? “Economies will lurch into

hyper-inflation...while social strains will increase,” the report says. The ‘magic bullet’ would

be the discovery of a new source of energy which can reverse the winding-down of the

energy returns equation. But a technological miracle seems unlikely, it says.

“In the absence of such a breakthrough, really promising energy sources (such as

concentrated solar power) need to be pursued together...with social, political and cultural

adaptation to ‘life after growth’.”

For further information please contact:

Media

Charlotte Kirkham Nick Woods

M:Communications M:Communications

+44 (0)20 7920 2331 +44 (0)20 7920 2348

kirkham@mcomgroup.com woods@mcomgroup.com

About Tullett Prebon

Tullett Prebon (http://www.tullettprebon.com) is one of the world’s largest interdealer brokers and

operates as an intermediary in wholesale financial markets facilitating the trading activities of

its clients in seven major product groups: Rates, Volatility, Treasury, Non Banking, Energy &

Commodities, Credit and Equities.

With offices in 21 countries, Tullett Prebon operates voice, hybrid, electronic, volume

matching, algorithmic matching and risk mitigation platforms, to accommodate the needs of

its clients, and to satisfy the regulatory driven evolution of the marketplace. Tullett Prebon

will be applying to be a Swap Execution Facility with the CFTC and the SEC in the US and

will continue to provide regulatory compliant infrastructures in all other jurisdictions.

In addition to its brokerage services, Tullett Prebon offers a variety of market information

services through its IDB Market Data division, Tullett Prebon Information.

Tullett Prebon has its principal offices in London, New Jersey, Hong Kong, Singapore and

Tokyo, with other offices, joint ventures and affiliates in Bangkok, Frankfurt, Geneva,

Houston (Texas), Jakarta, Luxembourg, Madrid, Manama (Bahrain), Manila, Mumbai, New

York, Paris, São Paulo, Seoul, Shanghai, Sydney, Toronto, Warsaw and Zurich.