peak economics

PEAK ECONOMICS


I don’t think I’ve irritated everyone with Peak Oil blathering for a week or two, so here goes. I know a lot of you dismiss Peak Oil. Oh, we’ll have North Dakota shale oil, oh, we’ll have bio-diesel, etc. I don’t necessarily care that you disagree with me, and in fact I’ve been known, on special occasions such as my birthday or a day ending in “Y”, to play the devils advocate just to amuse myself and piss people off. My father is quite proud, as I’m carrying on the Blarney Gene of the Dakin clan, last manifested in his father who, as a bartender, could convincingly argue both sides of every issue with ease and style. I do believe that you are already being affected by the oil issue and to hope for a far off fix will endanger your life. I don’t argue about this to prove myself right but to try to share my sense of danger. Today I’d like to talk about total delivered energy. And why, since it is down, this means the economic depression is both here to stay and guaranteed to get worse. If you knew we would see an economic depression so bad Argentine would feel bad for us, prior to the die-off, would you be doing anything different right now?

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When the Oil Age started to transform our economy in earnest, say for the sake of argument around 1930, an oil well could return as much as 200 to 1 in energy invested. The norm was about 100. Today, the norm for conventional oil is closer to thirty, and a large majority of all other energy is far worse. Deep water wells can be as bad as 10 to 1. Tar sands are around five to one, ethanol is around one and a half to one. Now add in population growth, parasitic government and monopolies, and chocking complexity to the decrease in energy yield. All in all, the extra oil and oil equivalents being produced are yielding less in real energy terms on a per capita basis, even in first world nations, and we have already entered negative economic growth. As has been Dead Horse Beat, a shrinking energy supply is the death of our banking system ( which IS the economy, outside of resources ). So, yes, that 20% decline in petroleum use we’ve seen since 2005/6 does mean the economy won’t recover. BUT. It is far worse than that, if that is possible. Our energy return keeps getting worse, so you don’t just see a 20% decline but an additional decline of whatever the BTU decrease was. As I’ve said of coal, we’ve been at BTU Peak for ten years. How can coal save us if its energy return has already started to decline? If a good portion of our electricity is coal powered, and the coal being burned delivers less BTU’s, do you see how this effects the grid?

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Take ethanol as a fuel. Around 10% BTU decline compared to oil. If it is 10% of our gasoline supply, you are getting a total of a one percent decrease in available liquid fuel. Add in that to the percent of import decline we see every year which is about five to seven percent. That is worse than the 1970’s OPEC oil shock in terms of energy availability. And look at the economic ramifications of that. Our economic growth has always been based on an increase of energy availability. We are already in decrease, and have been for years. Economically, things have no direction to go but down. Which means that every year that passes, your options as far as taking action to protect yourself decrease. So, really, what is the point in paying off a house which will be surrounded by more blight and crime every year? Why are you staying at a corporation if they will soon be bankrupt? Why pay for a car for seven years when its fuel will be unaffordable in three years?

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Yes, in the end a few of your decisions might look foolish. You might be a few years too early, should you panic now, cash out your 401k, and grow organic asparagus atop a concrete bunker. But the trend will continue. Can you afford to be wrong on your timing by sticking it out indefinitely? You can always pour money into the junk land and make it closer to a real home. But there is nothing you can do to a conventional home to make that mortgage go away as your hours are cut at work, a job in a soon to be outsourced or dinosaured industry. All I’m doing here is pointed out the historical trend, and asking the obvious. Why would the trend reverse?

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Veering off topic wildly, as I’m sputtering out on the above topic and need to fill today’s quota, a word on the US currency. Whenever I hear a college educated idiot or a parrot in the media make some kind of retching noise that sounds something like “the dollar is still the worlds currency, the safe haven for value”, but which is really only the sound one hears when a bloody brain is forcibly pulled out of ones anal orifice, I have to restrain my blood pressure. Every single currency in the world is a big pile of feces which holds no value whatsoever. All the remaining oil, even using generous estimates, and all the gold above ground, combined, don’t equal much more than the official US debt. Real wealth, in the form of precious metal and energy, can’t even match the global economy for one year. Because there is more paper and computer money in creation than there is real wealth to back it up. The only reason foreigners pinch their nose shut and accept dollars is because we control a military than safe guards the oil transportation infrastructure which keeps everyone warm in winter and eating year round. Otherwise, a million dollars isn’t worth the sweat on the underside of my testicles. All currencies are Monopoly money, in a race to the bottom ( as one financial wit has put it- although I like my man junk perspiration description better ). And what are the three things which allow our military to play policeman? Oil, surplus food and control of credit markets. The oil supply shrinks, the food supply ( widespread hunger and our military couldn’t control squat ) globally is in more danger every year from weather, and our credit market ( which allows fuel and food to flow ) is about one act away from meltdown ( perhaps when PIIGS fly- I think that one was from Kunstler ).

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My e-mail is jimd303@netzero.com
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