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PaulS's picture

Peak oil and the financial crisis

This is an astonishingly good article! Whatever else you do, please read this.

Some extracts:
What was happening at this time was that world oil production reached a plateau, about 2005. There were more and more bidders for what oil was available, and prices started to rise. OECD wanted more and more oil, but the oil producing nations also wanted more oil, and developing nations like China and India also wanted more oil. In response to all of this demand, the price of oil went up and up, but total world supply barely budged, and the amount of oil that OECD was able to buy started to drop.

Once prices of oil started to rise, the higher gasoline and diesel prices helped push a system which was inherently unsustainable over. By 2006, families had become less able to maintain high mortgages, and home prices started to decline. This started the decline in home prices that we are seeing today.

Once available resources start declining, growth begins to decline, debt defaults start rising, and soon after that, credit availability starts to decline.

Lack of growth is causing the credit unwind. There is nothing Bernanke or Geithner or the G20 meetings can do to fix the lack of growth--it is closely related to the lack of cheap oil and cheap natural gas, now that these have been depleted.

Growth is not possible any more--at best, we will get oscillation. Prices will drop, as it has recently. Demand will start to pick up again. Prices will rise rapidly, until a new lower production limit is reached, and more defaults on debt will occur, starting the cycle over again.

There is a real possibility that the whole system may crash. The value of the dollar may drop, or countries may become afraid of international trade, for fear that trading partners will not be able to make good on their promises. It may be necessary to start over with a new financial system that does not permit much debt.

The full article is here: http://www.theoildrum.com/node/5230. I recommend that everyone reads it. It adds further substance to the predictions within my blogs.