Peak oil and the financial meltdown

[pscot]

Gail the Actuary has an interesting lead post today over at the oil drum. It addresses some issues I've been mulling over for a while. It's followed by a very strong discussion thread. TOD is a mine of information. Wait. Maybe it's a gusher.

http://www.theoildrum.com/node/5230#more

Nearly all of the economic analyses we see today have as their basic premise a view that the current financial crisis is a temporary aberration. We will have a V or U shaped recovery, especially if enough stimulus is applied, and the economy will soon be back to Business as Usual.

I believe this assumption is basically incorrect. The current financial crisis is a direct result of peak oil. There may be oscillations in the economic situation, but generally, we can't expect things to get much better. In fact, there is a very distinct possibility that things may get very much worse in the next few years.

[Egalitariat]

1. So buy gold, land, guns, and ammo?****

nm

[pscot]

2. And acquire a large extended family

and some helpful neighbors with a varied skill set.

[Javaman]

7. Land would be your best bet, can't eat gold, guns or ammo. nt

[Egalitariat]

18. You'd need the guns and ammo to keep the folks who didn't see the light

from stealing your survivability away from you.

Gold will always be barterable.

[Javaman]

19. since you appear to know the answer, why did you pose the question?

:shrug:

[Egalitariat]

20. I wanted to make sure I hadn't forgotten anything****

nm

[GoesTo11]

3. The current financial crisis is a direct result of peak oil.????

Nonsense. It's the result of bubbles and irresponsible risk taking / trading.

[hunter]

4. The bubble popped when it hit the ceiling. The ceiling was peak oil.

Whatever economic recovery we engineer has to take that into account. We are not going to get out of this mess by increasing oil extraction rates. New oil development simply costs too much to support the sort of economy we've grown accustomed to.

[zipplewrath]

8. Not sure why you'd say that

The thing that "popped" the bubble was that interest rates stopped declining, and in fact went up. As people got into positions where they couldn't refinance their way out of their debts, the bubble burst. Many people were anticipating this as AJM's came due in some sense. What the vast majority of people missed was the CDS stuff magnified the problem by an order of magnitude or more. I guess you can make the point that peak oil doesn't help, but the rise in the price of oil wasn't so much a supply problem as it was a demand problem (and a speculative demand at that). I think you can make a case that the price of oil is actually too low right now, which sorta goes to the original point. The price of oil will be a hampering factor on any recovery. If you accept that peak oil is here in almost any sense, it means that there is no way to drill out of the problems.

Obama would claim that's why he has energy stimulus in his package. I suspect you'd argue (as would I) that such work will only contribute well in the future, and may never generate the kinds of energy costs that will be as cheap as the oil prices of the '90s.

[GoesTo11]

11. The bubble popped when it inflated too much.

That's what bubbles do. If the sea was made of oil, this bubble still would have popped. It was based on no-money down negative amortization mortgages to people with no documented income, and then unsecured bets on same.

Not saying peak oil isn't something we'll have to deal with and something that will cause massive economic upheaval and dislocation. But that may be the next crisis, not the last one.

[tama]

13. It's important to understand the system

"No-money down" is quite accurate description of fractional banking and money as debt - in all it's illegality and immorality. Bank lends 9x over what fractions it has, calling the loan "money" and demanding interest over what is nothing but thin air. So yes, you are right that the debt/money bubble of banking and fiat currency system would and will pop no matter what - when real economy really can't grow anymore or rather, pretend and make believe to be growing. That when is when a limit of growth is hit, when the petridish is half eaten by exponential growth. And as for limits of growth, fossile energy is what made last hundred years possible and there is no replacement.

[GoesTo11]

16. Limits to growth?

While fossil energy has obviously been convenient, from what I understand, alternative energy would could replace it but it would cost a lot to get there - so it would take more of our production, etc. If the nation went all out to go solar, big grid and electric vehicle/public transport, for example, it might cost a year's GDP (just as a wild number to throw out there, $15 Trillion), but then we'd be set. That's quite a lot of money, and not realistic politically, but theoretically doable; once fossil energy is too scarce, it might no longer be even theoretically doable.

[tama]

17. The all important difference

between theoretically possible but practically non-doable. :)

And equally important is to understand that even if cheap fossile energy (literally flowing from the ground and to barrel with uncomparable EROEI) could be or could have been replaced with renewables, what renewables cannot deliver is exponential growth like that of last century, at best only status quo and in all likelihood much too little electricity to fullfill the needs of the modern extremely complex technological society. Powerdown, scaling down, simplifying, back to basics, that is the dish Mother Nature is serving us, the only dish.

Very important to understand that no matter what, both preserving status quo in energy production and powerdown mean that the growth (usury) based economical system cannot function any more. Limit of growth.

[hunter]

21. The bubble is not about mortgages. It's about everything.

I've experienced it first hand. When I was a wild and reckless young man, gasoline was almost free. I'm not kidding. I could make ten bucks an hour moving furniture, and an hour's work was more than enough to fill my gas tank. From Los Angeles I could drive to San Francisco and back and the price of gas simply didn't even cross my mind. If I wanted to go somewhere, I did, all over the Western United States. Forty extra bucks in my pocket -- four hours work if it was under the table -- might see me to someplace like El Paso/Juarez, just for the hell of it. Woohoo!

And, oh yeah, college was almost free too. My rent was eighty bucks a month (a day's work...), I paid no tuition my first four years, and the expense that always irritated me the most was the cost of my books -- the worst I ever got hit for at once was $175, for all my books, all my classes. I was outraged! By my own work and the contributions of my very ordinary middle class family I graduated debt free.

The world is nothing like that for my kids. The wages kids are paid have hardly gone up at all, driving is expensive, rents are high, and attending a university costs a small fortune.

We've been going downhill for a long time, we've just been covering it up with all sorts of financial flim-flam. Now the rich are getting richer and the poor are getting poorer which is inevitable in any economy such as ours based on borrowing. The wealthy don't pay interest, they claim to "earn" it, but that only improves the general welfare when the economy is growing.

Unfortunately our economy can't grow any more because that growth was fueled by easy oil, all that almost-free gasoline people like me burned up on a whim.

[tama]

24. EROEI

Energy returned on energy invested during the golden era of cheap oil flowing from the ground was a one-time-only event. Now the easy oil is gone and EROEI is going back to difficult - until we return to the easiest of all EROEI, what Sun gives freely in the form of photosynthesis and what nature grows without any effort... back to paradise... :)

[pscot]

5. A pithy rebuttal

We can only guess at your reasoning. Pardon my lithp.

[Nihil]

6. .

:-)

[Terry in Austin]

9. Causality

One says that Mr. Boddy's death was due to a bullet entering the heart at high speed, while another argues that it was because Colonel Mustard pulled the trigger.

I think we've got some of that going on here...

[tama]

12. Also

Global oil production per capita peaked in 1979. Since then the overshoot-economy has been basically inflating a giant debt balloon together with capitalistic imperialistic expansion called "globalization".

[GliderGuider]

10. Nate Hagens' comment is very interesting

http://www.theoildrum.com/node/5230#comment-486480

Here is another perspective. I think "peak oil is direct cause of financial crisis" is a bit strong. More accurate might be "global peak oil laid bare some major dislocations in the capitalist/fiat system based on natural resource extraction".

More and more I am thinking the largest aspect of Peak Oil is going to be the social inequality that results. The 'free market' will not work if 80-90% of people are broke, and unable to afford energy and other natural resources at prices that the energy and natural resource companies would require to make a profit. I suspect that the next round of GINI coefficient and wealth disparity calculations will show a moonshot towards the right tail. How to keep social stability in this environment will be a herculean task, and likely require new institutions.

Said differently, we have been living well beyond our means not since Peak Oil, but for almost 40 years (and less beyond for longer), - the difference has been made up by borrowing from the future, borrowing from the environment, borrowing from other social classes, and most worrisome, borrowing from thin air.

The synchronization he notes between peak oil production and the cessation of growth in real incomes in the USA is very suggestive.

[tama]

14. Overshoot

"Said differently, we have been living well beyond our means not since Peak Oil, but for almost 40 years (and less beyond for longer), - the difference has been made up by borrowing from the future, borrowing from the environment, borrowing from other social classes, and most worrisome, borrowing from thin air."

As said, extraction of fossile liquid energy per capita peaked globally allready in 1979, 30 years ago. More environmental damage has been done in last 30 years than ever before together. The human population has been clearly in ecological overshoot since 30 years ago, accelerating over the cliff with last fumes and vapors of... sumfink...

[GliderGuider]

15. Word.

[pscot]

22. I read Wm. Catton's book

in the early 80's. It made a big impression on me, but until this forum came along, there just wasn't much interest in Catton's ideas. It's a shame this conversation didn't begin seriously with Overshoot. There might have been time for us to mend our ways.

[GliderGuider]

23. Catton was a key book for me too

Unfortunately I didn't read it until 3 or 4 years ago. By that time it was a more a lesson in why we're screwed than a pointer to anything we might do about it.

[tama]

25. But the funniest part

or at least most ironic - is that "we" are not in overshoot, only our greed is. This planet, this Mother Earth, can and could still provide ALL of our basic needs and then some, even with our current bloated numbers. A hectare per person, of which couple ares arable is all we need for food, medicin, clothes and shelter - together with friends and community.

[Bigmack]

26. Limits of Growth was a key book for this chile....

Finally got off my arse and looked in the old book case to see if I'd kept it, and sure enuf - it's still there. Reckon I'll re-read parts of that prescient tome - Ms Bigmack