The Great Simplification with Nate Hagens

Luke Gromen: "Peak Cheap Oil and the Global Reserve Currency”

Oct 4, 2023

01:31:16

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Financial analyst Luke Gromen joins Nate Hagens to discuss the impact of peak cheap oil on the global reserve currency. They explore the link between energy and finance, the potential for currency reform, and the role of gold and oil. They also touch on government capping interest rates, the potential economic future, inflation's impact on the middle class, and the difficulties in pricing due to externalities. The importance of including care and home tasks in GDP is also highlighted.

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Quick takeaways

The current global financial system is facing challenges due to peak-cheap oil, which has implications for energy-importing countries, energy-exporting countries, and the stability of the dollar and treasury market.

Energy is fundamental to our past and future, and without a significant energy productivity miracle, we can expect a rise in global capital costs, negative real interest rates, and high inflation.

The future requires shorter supply chains and relocalized production to address the complexities and risks, which necessitates significant political will and a departure from the current debt-driven system.

Deep dives

Currency Reform Due to Energy Decline

The current global financial situation is reaching exhaustion due to peak-cheap oil. The debt-backed fiat currency system, as it has been structured since 1971, when Nixon took the US off the gold standard, is facing challenges due to energy decline. The marginal cost of global oil supply is increasing, and the US government cannot afford the high interest rates necessary to sustain oil production. This situation has significant implications for energy-importing countries, energy-exporting countries, and the US, as they all rely on the stability of the dollar and the treasury market. Currency reform is inevitable, and a new reserve asset may be required to navigate the challenges posed by peak-cheap oil.

The Russian GDP: Energy, Weapons, and Little Else

00:22

Chinese strategies to avoid catastrophic economic outcome and political problems

01:19

Introduction

2min

Energy, Finance, and Currency Reform

17min

The Role of Energy in Society and its Impact on Currency

25min

Gold, Oil, and the Global Reserve Currency

14min

Government Capping Interest Rates and Real Rates

2min

The Potential Economic Future

16min

Impact of Inflation on the Middle and Lower Class

2min

Externalities and Pricing

13min

The Value of Mother's Care and Home Tasks in GDP

2min

On this episode, financial analyst Luke Gromen joins Nate to discuss how the availability of cheap energy has underpinned our current financial architecture and expectations - and what peak cheap oil implies for the future. A central part of this story is the rise of the US dollar as a global reserve currency tightly linked with the ability to purchase oil - subsequently leading to the US becoming a major exporter of debt. How have countries with economies based on natural resources and manufacturing differed in their response to geopolitical uncertainty in comparison to those who are based around finance and the service industry? What might the response be from countries holding US debt in anticipation of a declining oil supply? What does this mean for the future of global currencies in a simplified global economy and a finance system that will eventually need to be re-tethered to the finite nature of Earth?

About Luke Gromen:

Luke Gromen is the Founder and President of research firm Forest For The Trees, LLC, whose goal is to aggregate a wide variety of macroeconomic, thematic and sector trends in an unconventional manner to identify investable developing economic bottlenecks for clients. Luke founded FFTT to apply what clients and former colleagues consistently described as a “unique ability to connect the dots” during a time when he saw an increasing “silo-ing” of perspectives occurring on Wall Street and in corporate America. Luke has 25 years of experience in equity research, equity research sales, and as a macro/thematic analyst. He holds a BBA in Finance and Accounting from the University of Cincinnati and received his MBA from Case Western Reserve University. He earned the CFA designation in 2003.

For Show Notes and More visit: https://www.thegreatsimplification.com/episode/91-luke-gromen

To watch this video episode on Youtube → https://youtu.be/bIq0o40Jo80

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The Great Simplification with Nate Hagens

Luke Gromen: "Peak Cheap Oil and the Global Reserve Currency”