The post didn't come out right when first posted. Paragraphs have been corrected, with apologies.
* * *
It seems that the banking system of the United States got all better for the Thanksgiving holiday, because the FDIC did not close a single bank. Frankly, we wonder how the FDIC has managed to keep its reputation as high as it is, because this sort of politicisation is completely outrageous. As we understand it, the FDIC is tasked with protecting depositors of banks, not gauging the public mood for whether or not it should protect said depositors. This inaction is completely outrageous, in our humble opinion; we wish others were outraged, too. It does not make us feel confident that our banks aren't complete trash-heaps, and we wonder just how safe “[every] single penny of deposits” really is.
But at any rate, let us turn to world events. Dubai, we read, totters on the brink of default, and the rest of the world begins to panic about all the debt from the best skiing land the far side of the Rub' al Khali. Those little private islands aren't looking so hot as investments right about now, we'd hazard to guess; although, if we'd be permitted to moralise for a moment, they seem to us to be the logical conclusion of the insanity of suburban development. We honestly can think of nothing more ridiculously 'exclusive' than one's own, artificial island. The situation with Dubai is an interesting one, from a malinvestment point of view.
Let us be honest here: we fully expect anyone and everyone who invested in Dubai's madness will end up losing every single penny they ever invested. It will probably be a very fascinating blow-out to watch, but we'd like to take a look at how, exactly, this malinvestment probably came about. We are supporters of the notion of Peak Oil; i.e. the idea that the economically-extractable amount of oil in the world is finite, and will result in a permanent decrease in the availability of a potent energy source to fuel human economies. This is not a popular view, as we're sure you are aware; in fact, to even breath the words 'peak oil' in a sentence, and not immediately ridicule the concept as lunacy and defeatism, is to give suspect to one's character.
The popular discourse, as we understand it, is either permanently-increasing availability of cheap oil, or the latest stupidity called 'plateauing,' where oil reaches a level of production which can be maintained indefinitely. If it is taken as given that oil will never run out, then Dubai seems like a great investment, because the Emirate would forever become richer and richer; better invest now, before it gets even more expensive!
No one, it seems, stopped to question this notion of infinite oil before they leveraged themselves to the hilt to invest in Dubai. If, indeed, oil has peaked, which we believe it has, Dubai is probably going to be getting permanently poorer, at least in the long run. Hence, the grand malinvestment in Dubai, Dubai World, et al.
Dubai's madness – for really, what else could it be called, other than wilful insanity? – was facilitated by its endowment of oil. We'd like to present that oil as a windfall, for conceptual purposes; it was a one-time shot at something, granted by a quirk of geology and human development to the Emirate. They took that windfall and blew it on skiing in the desert and artificial islands shaped like palm trees; a grand gesture, we think, to the stupidity of humanity.
Norway, on the other hand, took their oil windfall and tried to use it for better purposes. As we understand it, they tried to use the vast wealth which came from the one-time exploitation of their oil to improve the quality of life for all Norwegians; something that Dubai has not done, and will never do. Quality of life in Norway will, we think, continue to be quite high, long after Dubai is perhaps consumed by sandstorms, or at least reduced to a ruin of its former self. The differences, we posit, between wise investment of a windfall, and a windfall-driven orgy of conspicuous consumption, will probably not be better evidenced than by these two nations.
The collapse of Dubai will likely serve as a model for future national collapses in the 2007 Depression. Those nations which have a windfall, and have already blown it, are probably going to go the way Dubai goes; namely, somewhere very dark and scary. It should serve as a stern warning to those nations which still have a windfall they're in the process of blowing, because it's not too late to change course. Smart investment of resource windfalls, such as oil, will be increasingly paramount in the future.
In this category, we're thinking of the resource-heavies of the world, and not the silly notion of BRIC which is presently flying around (Brasil, Russia, India, China); India and China, in our opinion, are going to blow out along the lines of Dubai. Instead, we'd like to present our pet notion of CARB: Canada, Australia, Russia, and Brasil. These four nations apparently enjoy fairly large resource endowments, which have not yet been economically exterminated; if husbanded, life in the 2007 Depression might not be quite so bad in CARB, as opposed to, say, Dubai.
The concept of CARB is one which we would prefer to address in a separate post, to avoid accusations of wind-baggery. Instead, and in closing, we'd like to point out the nation which has blown its resource windfall far more than Dubai could ever hope to accomplish.
Go on, guess. We dare you.
The New World was beyond a shot in the arm to the European economy, when it first began colonising the new continents; it was like speed, angel dust, crack, LSD, and crystal meth all rolled into one, injected directly into the brain. But before that granddaddy of all economic stimulus could be used for the benefit of European colonial powers, the United States came along and had the indecency to clam a vast swath of the New World for its own. From there, it proceeded to burn through the incredible, mind-boggling amount of wealth which was to be had, to build... umm... wait, we know this one. Oh yeah, suburbia, and the most expensive military the world has ever seen. Right, sorry.
Simply put, however bad Dubai will become, we will not be the least bit surprised if the U.S. ends up being far, far worse. It had a much bigger windfall, which it blew over about two hundred years and far too many pointless wars. The era of Warren Buffet's 'never bet against America,' we posit, is over. There is money to be made shorting the U.S. and investing elsewhere, not the other way around.
Showing posts with label peak oil. Show all posts
Showing posts with label peak oil. Show all posts
Sunday, November 29, 2009
Thursday, March 12, 2009
The True Victim of the Depression
We read an article from the International Herald Tribune which we found laughably uninsightful. Mr. Stephen Schwarzman, CEO of Blackstone Group, remarks that the world has lost about 40% to 45% of its wealth. Our cynical side wonders if he is covertly commenting on his personal portfolio, but we assume he is being honest in his estimation of the drop of the world's 'wealth.'
Even if Mr. Schwarzman's number is accepted as reasonably accurate -- which we do -- his comment is purely nonsensical: the 'wealth' he refers to was never real. It was perceptual wealth; it existed only because at least two people at the peak of valuation said it did: the credulous buyer, and the less-credulous seller. This fast-evaporating 'wealth' was patently illusory, as it had all the substance and reality of a mirage.
Beyond this basic falsehood of Mr. Schwarzman's comment lies the big, black truth that no one likes to think about. Depressions are not necessarily about destroying wealth; rather, they destroy excess. Excess demand, excess consumption, excess space, excess production, excess capacity, excess valuation, excess credit. These are the things upon which a depression feasts; nothing so trite and pedestrian as perceptual wealth. The most destructive feat of a depression, though, is how effectively it can eliminate productive capacity of an economy.
Within this destruction, though, is a major problem. All depressions of the past have occurred when energy was not a limiting factor. The populace did not wonder where the energy to renew the economy was going to come from. It was tacitly assumed, and rightly so, the energy necessary to rebuild economic activity was abundant.
We opine such a comfortable assurance is not present in the 2007 Depression. Demand destruction in world-wide oil consumption is a given, and some have mentioned that it is an end to the Peak Oil debate. We beg to differ: this destruction has guaranteed Peak Oil is upon the world (whether from the limits of Nature or the limits of Humanity is immaterial). The oil industry -- from whence the lifeblood of industrial civilisation flows -- is in danger of irreparable harm, as Simmons & Company International reports.
With the severe downturn in oil use, many oil wells, rigs and refineries are being spooled down... permanently. Most of this equipment is utterly antique, and can never be restarted at any cost; it is too rusty and too run-down, and needs to be replaced. On top of that, vast swaths of the industry's ageing workforce are retiring, and there are not enough new workers adequately trained to replace this loss of hard-earned talent.
At some point in the not-too-near future, the hard and unyielding ceiling of oil production capacity will become painfully apparent. By Simmons & Co.'s estimation, it will take upwards of $100 trillion to rebuild the world's energy production facilities, and make them a viable entity for the future. We have the suspicion that the money, the interest, and the labour will never be found. Too many people seem to believe that the oil industry is a profit-squeezing monster - instead of the abused and starving industry in danger of utter collapse it is.
Even if Mr. Schwarzman's number is accepted as reasonably accurate -- which we do -- his comment is purely nonsensical: the 'wealth' he refers to was never real. It was perceptual wealth; it existed only because at least two people at the peak of valuation said it did: the credulous buyer, and the less-credulous seller. This fast-evaporating 'wealth' was patently illusory, as it had all the substance and reality of a mirage.
Beyond this basic falsehood of Mr. Schwarzman's comment lies the big, black truth that no one likes to think about. Depressions are not necessarily about destroying wealth; rather, they destroy excess. Excess demand, excess consumption, excess space, excess production, excess capacity, excess valuation, excess credit. These are the things upon which a depression feasts; nothing so trite and pedestrian as perceptual wealth. The most destructive feat of a depression, though, is how effectively it can eliminate productive capacity of an economy.
Within this destruction, though, is a major problem. All depressions of the past have occurred when energy was not a limiting factor. The populace did not wonder where the energy to renew the economy was going to come from. It was tacitly assumed, and rightly so, the energy necessary to rebuild economic activity was abundant.
We opine such a comfortable assurance is not present in the 2007 Depression. Demand destruction in world-wide oil consumption is a given, and some have mentioned that it is an end to the Peak Oil debate. We beg to differ: this destruction has guaranteed Peak Oil is upon the world (whether from the limits of Nature or the limits of Humanity is immaterial). The oil industry -- from whence the lifeblood of industrial civilisation flows -- is in danger of irreparable harm, as Simmons & Company International reports.
With the severe downturn in oil use, many oil wells, rigs and refineries are being spooled down... permanently. Most of this equipment is utterly antique, and can never be restarted at any cost; it is too rusty and too run-down, and needs to be replaced. On top of that, vast swaths of the industry's ageing workforce are retiring, and there are not enough new workers adequately trained to replace this loss of hard-earned talent.
At some point in the not-too-near future, the hard and unyielding ceiling of oil production capacity will become painfully apparent. By Simmons & Co.'s estimation, it will take upwards of $100 trillion to rebuild the world's energy production facilities, and make them a viable entity for the future. We have the suspicion that the money, the interest, and the labour will never be found. Too many people seem to believe that the oil industry is a profit-squeezing monster - instead of the abused and starving industry in danger of utter collapse it is.
Monday, March 9, 2009
The Coming Energy Bubble
In the present period, it seems that many bubbles have been pricked, and are contracting. It brings to mind some beautiful high-speed filming we've seen recently on YouTube: a person holds a balloon filled with water, and then pricks it with a pin. The rubber almost instantly contracts, leaving the person holding a shimmering sphere of water for the briefest of moments. Then, inexorably, the water descends, leaving the person very wet...
The bubbles in various markets have indeed burst, but the 'water' has still not yet lost its bubble-like shape. However, we are uncomfortable saying that the era of bubbles is completely over. Indeed, we have the suspicion there are a few more, even bigger bubbles out there, awaiting the funds of the tragically credulous.
In our opinion, one big bubble of the future will be energy. There is less and less of it in the world every day... although this is nothing new. We feel that, sometime in the near future, the average person will become aware of this increasing scarcity -- Peak Oil, Peak Natural Gas, and Peak Coal. This will mark a vast change in the perception of the common person toward energy: no longer will energy be a vague thing that 'might' become scarce in a century or so; rather, it will be perceived as a very real thing indeed.
Inexorably, the credulous will invest in their perceptions, and so will the market value of energy and the companies which produce it go up. Perhaps it will be a proportioned rise in value, as compared to scarcity... but we doubt it. No, we expect a bubble to rival, and exceed, that of the California real estate bubble, the U.S. dollar bubble, and whatever other bubbles one would care to mention.
The reason people will likely throw so much money into energy is simple: human civilisation subsists on energy. It's a good 'story,' and the credulous like to invest in a good story; one only needs to look at the internet bubble -- remember that one? -- of a decade ago. Don't get us wrong: we strongly believe that energy requires some serious investment. However, we expect that the sheer volume of return-chasing one will see will be far out of proportion to the need.
The bubbles in various markets have indeed burst, but the 'water' has still not yet lost its bubble-like shape. However, we are uncomfortable saying that the era of bubbles is completely over. Indeed, we have the suspicion there are a few more, even bigger bubbles out there, awaiting the funds of the tragically credulous.
In our opinion, one big bubble of the future will be energy. There is less and less of it in the world every day... although this is nothing new. We feel that, sometime in the near future, the average person will become aware of this increasing scarcity -- Peak Oil, Peak Natural Gas, and Peak Coal. This will mark a vast change in the perception of the common person toward energy: no longer will energy be a vague thing that 'might' become scarce in a century or so; rather, it will be perceived as a very real thing indeed.
Inexorably, the credulous will invest in their perceptions, and so will the market value of energy and the companies which produce it go up. Perhaps it will be a proportioned rise in value, as compared to scarcity... but we doubt it. No, we expect a bubble to rival, and exceed, that of the California real estate bubble, the U.S. dollar bubble, and whatever other bubbles one would care to mention.
The reason people will likely throw so much money into energy is simple: human civilisation subsists on energy. It's a good 'story,' and the credulous like to invest in a good story; one only needs to look at the internet bubble -- remember that one? -- of a decade ago. Don't get us wrong: we strongly believe that energy requires some serious investment. However, we expect that the sheer volume of return-chasing one will see will be far out of proportion to the need.
Thursday, February 19, 2009
The Era of Peak Scam
It seems that not a day goes by we don't read about some juicy new financial scandal. The latest is the embezzlement of billions from funds earmarked to help 'rebuild' Iraq. The total cost to the American Citizenry may never be known, but as the article from The Independent notes, it's probably bigger than Bernard Madoff's $50 billion Ponzi scheme.
As we've remarked before, the 2007 Depression is an out-of-control freight train, hellbent on crushing anything and everything that doesn't get out of its way. At the same time, the still-present squeeze of Peak Oil (indeed, Peak Just-About-Everything) is working its own magic on the world economy. Together, these trends are forcing the world economy to continually shrink; one can see the effects of this shrinking in the entire world, from China to Canada.
With this world-wide crush ongoing, it will be very difficult for viable, legitimate businesses to survive. However, the crush will be even harder on the many, many scams of the world. Bernard Madoff was a smooth operator... but he was only the weakest hand in a whole world filled with smarter, bigger operators. The Galbraith Financial Principle comes into play at this point: the biggest and smartest fall last.
Scams, by their very nature, are unproductive and wasteful, and exist by leaching off of productive, honest endeavours. Time will tell if we are correct, but we suspect that the world has seen Peak Scam. Never again will the world enjoy such a perfect collaboration of cheap, widely available energy, and the impossibly loose financial environment of the past eighty years or so. There's a tonne of fat in the world economy, but that fat is being worked out... viciously.
As we've remarked before, the 2007 Depression is an out-of-control freight train, hellbent on crushing anything and everything that doesn't get out of its way. At the same time, the still-present squeeze of Peak Oil (indeed, Peak Just-About-Everything) is working its own magic on the world economy. Together, these trends are forcing the world economy to continually shrink; one can see the effects of this shrinking in the entire world, from China to Canada.
With this world-wide crush ongoing, it will be very difficult for viable, legitimate businesses to survive. However, the crush will be even harder on the many, many scams of the world. Bernard Madoff was a smooth operator... but he was only the weakest hand in a whole world filled with smarter, bigger operators. The Galbraith Financial Principle comes into play at this point: the biggest and smartest fall last.
Scams, by their very nature, are unproductive and wasteful, and exist by leaching off of productive, honest endeavours. Time will tell if we are correct, but we suspect that the world has seen Peak Scam. Never again will the world enjoy such a perfect collaboration of cheap, widely available energy, and the impossibly loose financial environment of the past eighty years or so. There's a tonne of fat in the world economy, but that fat is being worked out... viciously.
Wednesday, January 14, 2009
The Severity of the Situation
Recently an aid to the Saudi Arabian oil ministry stated oil demand may fall 23% to 45%. This is a startlingly candid figure coming from a rather conservative and secretive organisation. If oil demand is falling that much, economic activity as a whole is pretty much falling on par, and the 2007 Depression will become more like Great Depression II, if not the Greatest Depression Ever.
On the other hand, Saudi Arabia is known for its disinformation campaigns. All the while oil was rising from $30 a barrel to $140, Saudi Arabia said "we have plenty of oil at lower prices, it's just that no one wants to buy it." The present situation could be that the Saudis are now recognising the long-predicted collapse of their oil production is now imminent. What better way to cover up their declining production potential than to say "no one wants it."
This in itself would be bad news, of course. It would be more evidence of the certainty of peak oil, and the tremendous difficulty that would present to the world's economies.
A halving of income for citizens of the 'Developed Countries' may well be baked into the cake by now - whether the drop in oil production is cause or effect. It is not a pretty thought, but it would be best to plan for some pretty tough times ahead. Most predictions from mainstream media should be discounted, as they will be attempting not to sound alarmist. Pollyannish advice such as "it's never been a better time to buy real estate," or "the current recession is a bump in the road to greater prosperity" should be seen as a quick route to financial suicide.
The growth paradigm of the past few centuries is over. While up until recently, recession and depression were interruptions of chronic growth; for the foreseeable future, spurts of growth and recovery will be interruptions of chronic collapse. This is quite a change, and at first few will be able to wrap their heads around it. It will turn a lot of rules of thumb upside down.
We are not saying all is doom and gloom. As long as people have the liberty to innovate, the world will adjust to a new (and possibly better) way of doing things. It is possible to live quite well on a 'low throughput' diet. Thrift, conservation, invention and efficiency can deliver a good life on a low budget. On that you can bank.
On the other hand, Saudi Arabia is known for its disinformation campaigns. All the while oil was rising from $30 a barrel to $140, Saudi Arabia said "we have plenty of oil at lower prices, it's just that no one wants to buy it." The present situation could be that the Saudis are now recognising the long-predicted collapse of their oil production is now imminent. What better way to cover up their declining production potential than to say "no one wants it."
This in itself would be bad news, of course. It would be more evidence of the certainty of peak oil, and the tremendous difficulty that would present to the world's economies.
A halving of income for citizens of the 'Developed Countries' may well be baked into the cake by now - whether the drop in oil production is cause or effect. It is not a pretty thought, but it would be best to plan for some pretty tough times ahead. Most predictions from mainstream media should be discounted, as they will be attempting not to sound alarmist. Pollyannish advice such as "it's never been a better time to buy real estate," or "the current recession is a bump in the road to greater prosperity" should be seen as a quick route to financial suicide.
The growth paradigm of the past few centuries is over. While up until recently, recession and depression were interruptions of chronic growth; for the foreseeable future, spurts of growth and recovery will be interruptions of chronic collapse. This is quite a change, and at first few will be able to wrap their heads around it. It will turn a lot of rules of thumb upside down.
We are not saying all is doom and gloom. As long as people have the liberty to innovate, the world will adjust to a new (and possibly better) way of doing things. It is possible to live quite well on a 'low throughput' diet. Thrift, conservation, invention and efficiency can deliver a good life on a low budget. On that you can bank.
Wednesday, December 31, 2008
Energy Independence the Hard Way, Part 2
Read Part 1 here.
Yesterday's post asserted that the United States will painfully achieve energy independence in the coming years, through economic collapse and demand destruction so pervasive and deep that it boggles our mind. Nevertheless, we see this eventuality as a certainty for the U.S. Today we give details.
The 2007 Depression, as we have said many times before, is lowering income; that is the nature of an economic depression. In the United States, one can expect to see income on par with the global average ($10,000 per person). This means an approximate loss of 78% of present United States average income ($45,800).
This destruction of income will come hand-in-hand with several other, global trends. The first is peak oil: the unstoppable decline in oil production, ever since production peaked in 2005. Oil exporters, like Saudi Arabia, are already beginning to divert more of their production for domestic use, and less for exports. Once the fall in global oil consumption, due to the Depression, is overtaken by the fall in oil supply, the price of oil will inexorably rise.
Additionally, the U.S. Dollar is rapidly facing its demise as the world's reserve currency. As the world savours one last economic violation at the hands of Bretton Woods, the call has gone out for Bretton Woods II, and a global central bank. This is the death knell for the privileged position the U.S. Dollar enjoys, and the end of inexpensive imports for the USA.
Putting these trends together, everyone will be poorer in the United States. Gasoline will be far more difficult for the average American to buy. Because of both these trends, personal vehicles as they are known today (i.e. gas-sucking commuter tanks) will no longer be affordable for all but a tiny minority. We posit mopeds will be the more attractive option, or motorcycles, if one feels affluent.
This change in income and transportation will necessarily bring a change in living space (see an earlier post). In 1950, the average American enjoyed 292 square feet; the McMansion binge makes today's number around 900 square feet per person. A 75% drop in today's average living space per person seems about right to us. This, taken together with improvements in energy efficiency, will greatly diminish the need for home heating, lighting and cooling. Commercial space, especially retail, can expect a equivalent slimming down.
In conclusion, we come back to President-elect Barack Obama's economic stimulus programme at change.gov. Billions of dollars, if not trillions, are going to be thrown at the "energy problem"... but we will bet good money it will have no lasting effects. The economic collapse we've outlined is an unstoppable force that has a programme of its own.
Smell that in the air? That's change.
Yesterday's post asserted that the United States will painfully achieve energy independence in the coming years, through economic collapse and demand destruction so pervasive and deep that it boggles our mind. Nevertheless, we see this eventuality as a certainty for the U.S. Today we give details.
The 2007 Depression, as we have said many times before, is lowering income; that is the nature of an economic depression. In the United States, one can expect to see income on par with the global average ($10,000 per person). This means an approximate loss of 78% of present United States average income ($45,800).
This destruction of income will come hand-in-hand with several other, global trends. The first is peak oil: the unstoppable decline in oil production, ever since production peaked in 2005. Oil exporters, like Saudi Arabia, are already beginning to divert more of their production for domestic use, and less for exports. Once the fall in global oil consumption, due to the Depression, is overtaken by the fall in oil supply, the price of oil will inexorably rise.
Additionally, the U.S. Dollar is rapidly facing its demise as the world's reserve currency. As the world savours one last economic violation at the hands of Bretton Woods, the call has gone out for Bretton Woods II, and a global central bank. This is the death knell for the privileged position the U.S. Dollar enjoys, and the end of inexpensive imports for the USA.
Putting these trends together, everyone will be poorer in the United States. Gasoline will be far more difficult for the average American to buy. Because of both these trends, personal vehicles as they are known today (i.e. gas-sucking commuter tanks) will no longer be affordable for all but a tiny minority. We posit mopeds will be the more attractive option, or motorcycles, if one feels affluent.
This change in income and transportation will necessarily bring a change in living space (see an earlier post). In 1950, the average American enjoyed 292 square feet; the McMansion binge makes today's number around 900 square feet per person. A 75% drop in today's average living space per person seems about right to us. This, taken together with improvements in energy efficiency, will greatly diminish the need for home heating, lighting and cooling. Commercial space, especially retail, can expect a equivalent slimming down.
In conclusion, we come back to President-elect Barack Obama's economic stimulus programme at change.gov. Billions of dollars, if not trillions, are going to be thrown at the "energy problem"... but we will bet good money it will have no lasting effects. The economic collapse we've outlined is an unstoppable force that has a programme of its own.
Smell that in the air? That's change.
Tuesday, December 16, 2008
The Reality of Peak Minerals
An idea which is gaining traction in the mainstream is Peak Oil, the inevitable maximum level of world oil production. The idea of limits to growth is not a happy one for most, so we will sidestep the argument of whether or not scarcity of energy can be overcome with technology. Instead, we merely point to the facts: all major oil producers have peaked, and indeed world oil production (excluding ethanol, tarsands, and other such silliness) peaked in 2005.
But what of other minerals, the stuff that oil rigs and cellphones are made of? Their futures are no different from that of oil. In fact, many minerals have already peaked: the fertilisers potash and phosphate rock both peaked in 1989; industrial metals lead and cadmium peaked in 1986 and 1989 respectively;... and we hear rumblings that peak copper has recently been reached.
If peak minerals were to have occurred absent peak oil, the increasing scarcity of minerals might not have been as bad. However, the world is facing both increasingly-difficult-to-mine minerals, and increasingly-difficult-to-drill oil. Quite simply, this means that the prices of anything that requires oil and minerals will be going up in price - if not nominally (i.e. increased purchase price), in any case in terms of affordability (i.e. lowered personal income).
It seems to us that this is just about everything. Although some may say that improved technology will help alleviate the pressures of scarcity on supply and cost, we respectfully disagree. The pressures of scarcity will be made even more painful with the 2007 Depression. Falling incomes will make one poorer, inflation will burn up the purchasing power of what money one gets, and one's stuff will be more costly to buy... one will be feeling triplely poorer.
But what of other minerals, the stuff that oil rigs and cellphones are made of? Their futures are no different from that of oil. In fact, many minerals have already peaked: the fertilisers potash and phosphate rock both peaked in 1989; industrial metals lead and cadmium peaked in 1986 and 1989 respectively;... and we hear rumblings that peak copper has recently been reached.
If peak minerals were to have occurred absent peak oil, the increasing scarcity of minerals might not have been as bad. However, the world is facing both increasingly-difficult-to-mine minerals, and increasingly-difficult-to-drill oil. Quite simply, this means that the prices of anything that requires oil and minerals will be going up in price - if not nominally (i.e. increased purchase price), in any case in terms of affordability (i.e. lowered personal income).
It seems to us that this is just about everything. Although some may say that improved technology will help alleviate the pressures of scarcity on supply and cost, we respectfully disagree. The pressures of scarcity will be made even more painful with the 2007 Depression. Falling incomes will make one poorer, inflation will burn up the purchasing power of what money one gets, and one's stuff will be more costly to buy... one will be feeling triplely poorer.
Wednesday, November 26, 2008
Two Macro Trends of the 2008 Depression
We have been careful to avoid detailed or specific predictions of what is going to happen during the 2008 Depression. Certain symptoms, like the housing price and tax receipt collapses, are 'baked into the cake.' In this post, we will look at some macro-scaled trends of this Depression, and what shapes they may take in coming years.
The first trend is a monetary crisis. This Depression, like every other, involves economic contraction. This was brought about by too many people and organisations assuming more debt than they could feasibly service. As these debtors inevitably began to default, the world economy began to contract. This process will continue until all untenable debt world-wide has defaulted or been renegotiated.
This unstoppable contraction is putting considerable pressure on all monetary systems. The world-wide paper money experiment is unable to cope in its present form with this force, and is in a state of crisis. Central bankers are aligning their respective policies to inflate the money supply in an attempt to combat the economic contraction. They may succeed in creating consumer price inflation, but they will not be successful in arresting the ongoing contraction.
This phase of the 2008 Depression does not necessarily spell the end of the paper money experiment, but it guarantees at least one large and unpredictable shift in policy. Whether this will cause rising consumer prices or falling consumer prices is unimportant to the macro trend. Suffice it to say that money as it is known today will be rapidly changing in the near future.
The second trend, which will serve to reinforce the contraction of the world economy, is that of increasing energy scarcity. Peak oil, long considered a crackpot theory, is indeed a reality: production of light sweet crude oil, the most potent and versatile natural energy source, peaked in 2004 and has begun an irreversible decline. There is no way to reverse this trend... but we will save more detailed discussion for a later post.
As energy becomes increasingly scarce, the world economy will increasingly contract. What energy is available will be increasingly diverted towards high-value-added processes. The world economy has hit the wall of falling energy availability, and will be forced to adapt to the new energy reality.
These two macro trends -- monetary crisis and energy scarcity -- are ones to be very aware of in the coming years. The 2008 Depression will make working against these trends ruinous. It would be wise to avoid institutions and investments which ignore these trends, or simply assume these trends will be managed without ill effect. If one recognises these trends are not temporary, one can plan more effectively for the future.
The first trend is a monetary crisis. This Depression, like every other, involves economic contraction. This was brought about by too many people and organisations assuming more debt than they could feasibly service. As these debtors inevitably began to default, the world economy began to contract. This process will continue until all untenable debt world-wide has defaulted or been renegotiated.
This unstoppable contraction is putting considerable pressure on all monetary systems. The world-wide paper money experiment is unable to cope in its present form with this force, and is in a state of crisis. Central bankers are aligning their respective policies to inflate the money supply in an attempt to combat the economic contraction. They may succeed in creating consumer price inflation, but they will not be successful in arresting the ongoing contraction.
This phase of the 2008 Depression does not necessarily spell the end of the paper money experiment, but it guarantees at least one large and unpredictable shift in policy. Whether this will cause rising consumer prices or falling consumer prices is unimportant to the macro trend. Suffice it to say that money as it is known today will be rapidly changing in the near future.
The second trend, which will serve to reinforce the contraction of the world economy, is that of increasing energy scarcity. Peak oil, long considered a crackpot theory, is indeed a reality: production of light sweet crude oil, the most potent and versatile natural energy source, peaked in 2004 and has begun an irreversible decline. There is no way to reverse this trend... but we will save more detailed discussion for a later post.
As energy becomes increasingly scarce, the world economy will increasingly contract. What energy is available will be increasingly diverted towards high-value-added processes. The world economy has hit the wall of falling energy availability, and will be forced to adapt to the new energy reality.
These two macro trends -- monetary crisis and energy scarcity -- are ones to be very aware of in the coming years. The 2008 Depression will make working against these trends ruinous. It would be wise to avoid institutions and investments which ignore these trends, or simply assume these trends will be managed without ill effect. If one recognises these trends are not temporary, one can plan more effectively for the future.
Subscribe to:
Posts (Atom)
Posts
