Over the years here I have written numerous articles examining the nature of money and how it works. A few of the them are listed at the end of this article. Recently, in observing the simultaneous collapse of the monetary system and the Energy extraction bizness, I had a bit of an epiphany in terms of being able to explain in a straightforward fashion why the Central Banking paradigm worked when there was vast and cheap energy available, and why it doesn’t work once the energy becomes more scarce and hard to extract.
 
Money serves as a Valve which controls the downhill flow of energy, which can do useful work as it flows downhill. This is basic Thermodynamics.
To envision how this looked at the beginning of the Industrial Revolution, you have a large stock of energy that is pent up, and there is a high pressure pipe feeding the Money Supply valve. The Valve Controller who is the Central Bank issuing Debt to access the Energy is at this point in complete control of the velocity of money and the economy. They have two places to issue debt to, Industry which utilizes the Energy to produce Products and Waste, and Consumers who Consume the Products and produce Waste also.
If the CB at this point issues out too much credit to Industry, but not enough to Consumers, the Economy “Overheatsâ€, and you can get a crash resultant from this, which basically was the scenario leading into the Great Depression.
The CB can also issue too much credit to Consumers and not enough to Industry, in which case you get an inflationary spiral.
Neither scenario of course is very good for the folks issuing the Credit, they want to maintain an ideal balance between Credit offered to Industry and Credit offered to Consumers so they can continue to extract the energy, Industry produces the Goods and Waste and Consumers consume the Goods and produce Waste. This is the underlying feature of Waste Based Economics.
As long as the Energy is coming out at high pressure, the Money Valve of the CB is in complete control of the Economy.
Now, what occurs when the Energy stock drops down to the point it is coming out at a lower pressure?
In this case, the Money Valve is much less functional. It still can distribute out Credit to both Industry and Consumers, but the amount it can issue in total is constrained by the Energy supply. In such a reductionary scenario, the CB tries to triage off credit to both sectors in order to maintain a steady, if smaller downhill flow.
