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Ep 91  |  Luke Gromen

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

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TGS91 Luke Gromen The Great Simplification

Show Summary

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.

In French, we have a motto that says that a simple drawing is often better than a long explanation. Jean-Marc Jancovici Carbone 4 President

That’s very understandable because with left atmosphere thinking, one of the problems is that you see everything as a series of problems that must have solutions. Iain McGilchrist Neuroscientist and Philosopher

We can’t have hundreds and hundreds of real relationships that are healthy because that requires time and effort and full attention and awareness of being in real relationship and conversation with the other human. Nate Hagens Director of ISEOF

This is the crux of the whole problem. Individual parts of nature are more valuable than the biocomplexity of nature. Thomas Crowther Founder Restor

Show Notes & Links to Learn More

00:15 – Luke Gromen info, Forest for the Trees LLC

03:10 – Energy Backed US Dollar

03:25 – Nixon taking the US off the gold system

03:58 – Jelle Zijlstra

05:35 – 90% of oil production growth has come from US Shale

05:52 – 8-10% growth in the price of oil is needed in order to break even in shale oil fields

06:21 – Red Queen Phenomenon

13:20 – China 27-year gas deal with Qatar

13:32 – How China came to control an OPEC country’s oil

14:38 – China selling off US Treasuries

15:15 – US freezing Russia’s assets

16:03 – Dutch Disease

18:37 – Energy is the currency of life

18:49 – Work hours in a barrel of oil (Section 4.3)

19:27 – Breakdown of US and Russian GDPs

23:55 – BRICS, new BRICS members

25:05 – China is the biggest oil importer and the biggest trading partner with most of the world

27:09 – Straits of Malacca

29:14 – Alan Greenspan

30:10 – FFTT Chart showing Central Bank holding of treasuries fell by ~600% since 2013 and Gold has gone up $300 billion

31:07 – Mutually assured destruction

32:32 – The US is 90% energy independent

34:05 – Dollar denominated debt

36:27 – US debt up 11-12 trillion dollars in the last decade

36:41 – Money comes from commercial bank loans and government deficit spending

38:17 – US spending is 65% on entitlements, 25% on defense, and 30% on interest

39:26 – Quantitative Easing and Yield Curve Control

40:51 – 1999 emerging markets crisis

42:30 – Ghana buying energy using gold, Argentina using Yuan swaps to repay the IMF
45:35 – Expansion of paper gold derivatives over the last 30-40 years

48:20 – Stock to flow ratio

50:02 – US restriction on gold in the 1930s, limits on cryptocurrency today

50:28 – US has a quarter of world’s gold reserves

52:38 – US’s largest export is US treasuries

56:30 – Bank of Japan yield curve control

57:18 – WWII US cap of treasury bonds and consequential value in real vs nominal rates

1:01:24 – Debt Jubilee

1:02:32 – US blue states currently subsidize the red states

1:08:46 – Authoritarian states make change more quickly and allocate resources more easily than democracies

1:11:15 – Helen Thompson – Disorder

1:12:34 – Strategic Petroleum Reserves

1:16:58 – Tragedy of the Commons

1:21:25 – Dan Oliver chart showing hyperinflation in Weimar Germany

1:22:40 – 2-year treasury volatility March 2023, repo-rates spike from 2% to 10%

1:29:23 – Care economy

1:29:57 – True economic value of a stay-at-home parent

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