Created Tuesday 27 March 2018
The World through the Lens of Peak Oil
The last 100 years of industrial reality have conditioned us to look at the world in a particular way. We expect things to become faster, cheaper and more convenient. And we assume this will happen for ever. We look at life through this lens and therefore do not recognize world events for what they really represent. For instance, the world is certainly aware that something economically painful is happening all over. The relentless consistency of financial failures has stumped the best of minds.
- Food prices and living expenses shooting up globally.
- Social unrest erupting in various parts of the world.
- Real estate prices crashing in the U.S.
- Global Financial Collapse of an unprecedented order in 2008 and the persistent recession.
- Mayhem in the Euro zone economies with no end in sight.
- Conventional economic measures such as lowered interest rates, bailouts, quantitative easing and even unabashed money printing consistently failing to stem the financial crisis over the last 5 years.
Yet mainstream news narratives are blaming these events on secondary factors, such as faulty political decisions, misplaced economic policies, manipulation by vested interests and even unfair trade practices in certain countries. Sadly they are clueless about the real underlying causes because our cultural lens of progress and development based on the assumption of infinite resources and energy has trained us to see things in a certain way. And that seemed to work so far because we were on the up-curve of energy, giving us the illusion that it would always hold true. But reaching Peak Oil has inverted the rules of Economics and the way things work.
We now have to see the world through a new lens – the lens of Peak Oil. Only when you take a look through this lens do the dots between these events connect to reveal the truth behind their cause.
Let us examine some of these events a bit closer.
High Food Prices
Industrial food products today completely depend on cheap oil and oil byproducts such as pesticides, herbicides , fertilizers, etc. Both the transportation and the energy used in farming directly depend upon the price of oil.
Therefore oil prices invariably affect the food production industry due to its intensive energy consumption. Today’s food prices reflect even the smallest variation in oil prices.
Moreover, the cheap price of oil has allowed extensive industrial agriculture to develop and therefore the prices of food to remain artificially low. As cheap oil runs dry, artificially cheap food will do so too. High food prices are therefore a sure indicator that we have reached Peak Oil.
U.S. Housing Collapse
“I can calculate the movement of the stars, but not the madness of men”.
Sir Isaac Newton, after losing a fortune in the South Sea bubble.
It all started in the U.S. of A. where they had the smartest and most enterprising financial heads to dream up new ways to try and power the demands of the money curve.
The U.S. housing market degenerating into sub-prime lending was just another way of perpetuating false growth or rather growth beyond the limits that the system was naturally allowing. Remember loaning money at compounding interest rates is the prime mode of money growth. Therefore widening the loan circle to citizens who were clearly not loan-worthy was the first step.
The more a person owed, the more money the banks would make. Therefore, housing debt became a commodity that banks started packaging and selling. This said, there is only so many loan agreements you can issue out. So Wall Street banks, not content with just that, decided to further leverage their profits. If you remember, leveraging was one of the Concept layers in the Money Onion that was mentioned in the first chapter.
So in this case, leveraging meant using mathematical modeling by which banks managed to create sophisticated financial instruments (securitized debt) based on housing mortgages that were essentially limitless in scope.
So while the number of mortgages did not increase, the debt they represented skyrocketed, which is equivalent to the banks printing money. Sadly, the banks made a false assumption that real estate prices would always rise and so imagined that the risks in the bad loans were always covered. Under the stress of high oil prices, rising prices and loss of jobs etc., housing was no longer a priority, leading to a fall in housing prices. The whole scheme back-fired.
The irony is that in hindsight the financial disaster has not even been attributed to the world having reached Peak Oil.
Euro Crisis and World Recession
Then came the Euro debt crisis, which is still foxing the world’s best brains. The European Union leaders are unwilling to look the beast in the eye. Debts are toxic and need to be written off since growth is no longer possible and consequently, loans cannot be repaid.
To a casual observer, it may appear as if there is nothing in common between the U.S. housing collapse and the Euro crisis. But in concept, they are fundamentally the same. The only difference is that while in the U.S. the banks schemed to draw new homeowners to take loans that they could not afford, in the Euro zone the trick was finding new countries to extend loans to.
You see, big banks in Europe were limited by the slow-growing, mature economies they operated in. You can’t make money if you can’t lend it, so they were stymied. The solution was the Eurozone, which expanded boundaries to cover the cash-starved countries of Southern Europe. Banks began lending on the basis that the loans would all be made good by the European Central Bank even if the southerners couldn’t pay them back.
This was exactly like Wall Street giving housing mortgages to poor families in the U.S. even though there was no hope of them paying them back. So in Europe it is Greece, Spain, Italy and Portugal who are the poor, about to default on their inflated debt.
When seen this way, we understand that the U.S. housing mortgage crisis and Euro crisis are mere domino effects of trying to perpetuate false growth that real energy and resources do not support. Oil reaching $146 per barrel in 2007 was all the nudge needed to set them falling into what turned out to be a worldwide recession.
To further substantiate this argument, let us do a quick review of the correlation between oil price spikes and recessions over the past 50 years.
Five out of six sharp oil spikes resulted in a recession.
This shows us the extent to which oil is a key factor in our financial stability.
Economists, the business community and world leaders dazed by the financial collapse are still in severe denial but day by day, the correlation of high oil prices and financial instability are becoming evident.
Yet, mainstream media avoids the term “Peak Oil” like the plague.
Arab Spring – Unrest in the Middle East
The social unrest that we have been noticing in the Middle East is often perceived as an uprising against an autocratic regime. And in some countries it is misunderstood as a sectarian clash between Shias and Sunnis.
These are secondary effects. The root cause is the high cost of food and lack of jobs and livelihoods due to high energy prices.
If this sudden spate of unrest were because of the nature of governments, the people would not have tolerated the same regimes for the last 70 or 80 years. Yes, all was fine while the people’s fundamental needs of jobs, food and basic necessities were met. There was no need to revolt. Coming down to the streets and facing bullets is not people’s first choice. This is the last stage of a system in economic collapse. And that through the lens of Peak Oil is clearly understood as the ripple effect of high energy prices.
Occupy Wall Street
Occupy Wall Street started on September 17, 2011 in the financial district of New York City. The main issues were social and economic inequality, greed, corruption and the undue influence of corporations on the government. So the net signal that came through from their protest slogans was that it was all about corporate greed and government connivance. Though these may be valid points for the protest movement, they are not its underlying cause.
Check out this line of causation.
- Much lower real production in the U.S. translates into very small real growth.
- Very small real growth means devising means to fake larger growth.
- Faking growth leads to eventual correction and then financial collapse.
- Financial collapse causes financial crisis.
- Financial crisis means ordinary people lose jobs.
- BUT big banks and big players always get bailed out by the government in a crisis.
- The price tag for the bailout is diverted to the tax-payer who is already jobless.
- For a while the tax-payers don’t mind as long as the system can bounce back.
- Peak oil ensures that the system cannot bounce back as growth is geologically not possible.
- Prices soar, job losses soar, production falls further.
- Play it from the top a few times and…
Yes, the core driving force is the worldwide shrinkage of economic activity due to a global energy decline. That is Peak Oil.
The tragedy is that most of the poor protestors had no clue of the role of Peak Oil in their lives. Which is why their anger and revolt seemed misguided against the corporates who are themselves victims of an End of Growth scenario brought on by Peak Oil.
Nothing Seems to Work
This brings us to the last sign: no amount of corrective economic and political measures seems to be working. And that is because nothing can kick-start growth if the very basis of growth is to run a system that was built on the premise of infinite supplies of cheap energy. And it is not as though the world’s energy supplies are suddenly over. It is only that we are entering the downside of the curve – Hubbert’s Curve – that tells the plain truth of how we get energy and resources from the Earth.
Yes, bailout of the institutions and big banks could have helped if their mistake was a genuine error of judgment and not a deliberate effort to redefine a financial system along the lines of gambling and financial jugglery.
Yes, we could have generated more credit in the circular fashion, as we always did, if it was possible to produce more goods to service that credit. But goods need real resources and cheap energy to be in fact “good”.
Yes, we could have lowered interest rates to encourage enterprises to take loans if taking those loans could somehow result in entrepreneurs coming up with new products that could actually be sold at a profit. But in a large part of the western world, the interest rates are already near zero and most people are opting for “needs” over “wants”.
Yes, quantitative easing could have helped lubricate financial pipelines if the problem was only a congestion of financial arteries.
So, because nothing is working at this point of time, it is a scenario of “no holds barred”. Big money is doing what it can to protect its interest even if it means being in bed with the government. They are getting bailouts which the general public will have to pay with taxes over the next several generations. The government is going through the moves of betting future public money, in the form of bailouts and quantitative easing, on schemes that it well knows will fail.
The irony is that the public is keeping its mouth shut because it somehow wants the system to work and does not know any other way to get out of this mess.
And the mess is that we are unwilling to believe that maybe, just maybe, growth is over. The tide has turned. The peak has been reached.
No wonder we here loud and desperate demans for Alternative Energy! Well let us spend some time checking them out.