What will the effect on today's global market if a new source of free unlimited energy was to be discovered?

How badly will it disrupt today's global market and how badly will it affect our currency?

Or it will do good to today's economy?

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    $\begingroup$ Well, any free resource is good for economy in the long run. It is bad for people who assumed that energy won't be free. An example is energy producers. They invested into energy production equipment assuming that energy won't be free, and this assumption is critical for return on investment. $\endgroup$ – beroal May 11 '17 at 6:19
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    $\begingroup$ As you're asking about an impossible hypothetical, that's not really a good fit for this site, where we deal with actual problems that you face. If you are building a fictitious world, then please do flag your question for a moderator's attention, and ask for it to be migrated to Worldbuilding $\endgroup$ – 410 gone May 11 '17 at 7:31
  • $\begingroup$ Sun is the source of free unlimited energy. Converting any free energy into the energy that is useful to humans can only be done by others humans and that always requires resources. $\endgroup$ – Draif Kroneg May 21 '17 at 23:12

This would represent an extreme increase in long-run aggregate supply. In the AS/AD framework, this would result in a long-run increase in production growth and a decrease in the inflation rate.

How "badly" it will disrupt today's global market? You've built an assumption that it's bad into your question, but sure, it will be bad for anyone who has invested in current energy sources. It will be fantastic, however, for anyone involved in literally any other entrepreneurial activity.

The only disruption in such a sudden and unexpected technology improvement would be that some financial institutions would find themselves overinvested in the energy sector. Insofar as they cannot handle the financial capital losses, there may be a private debt crisis that pushes politicians to bail them out again (ideally using the increases in tax revenues caused by increased productivity), or to simply declare their debt null and void. This would cause some consternation, but given that people tolerated financial bailouts after the housing crisis (where financial assets were wasted without any obvious social benefits at all), it's unlikely that there would be overwhelming protest in such a scenario.

The negative impacts of such a productivity shock would only be temporary, however. Energy is one of the limiting factors of production, so free energy would cause production to grow as fast as entrepreneurs can find a use for it, which would be very quickly.

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  • $\begingroup$ you said that "there may be a private debt crisis that pushes politicians to bail them out again". Can you explain it a little bit or direct me to a relevant source. $\endgroup$ – Deiknymi Jul 8 '17 at 11:45

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