Oct
1
Fun With Gloom and Doom
October 1, 2007 | Leave a Comment
The Oildrum has posted Gail the Actuary’s third installment titled “Economic Impact of Peak Oil Part 3” where she writes her ideas of what the future holds about the coming decline of oil and the impact of a collapsing credit market. I am quite taken by the article and appreciate her efforts in getting a foundation under her ideas. Perhaps even better are the comments from the astute and knowledgeable readers in the comments that follow. See:
http://www.theoildrum.com/node/2984#more
I admit I had a little different expectation than what Gail has written. I was more looking for a set of steps rather than a straight to the abyss kind of construction. Nevertheless Gail has taken us on a possible if not probable scenario of what might be coming. And that is where I diverge.
There is a lot in store for alternate forms of energy production and fuel making both ready now, soon to be ready, in development and in research. Those prospects can be reviewed just by looking through this site. But a quick run through would include migrating quickly to butanol away from ethanol, pitching uranium based atomic fission over the side and getting thorium reactors developed and constructed quickly, swiping some petroleum geologists out of Russia to reinvigorate US oil discovery, deciding on a policy that makes gas guzzlers a prohibitive if not wholly socially disgusting choice and offering any and all incentives for wind, solar and geothermal sources. Humanity needs cellulosic alcohol solved and one of the fusion ideas working.
So I’m not fully on board with Gail on the oil angle on the articles prognostication. But I am on board on the credit market angle.
Here I think she went short on the extent of the problem. For those who watch the value of the dollar, it’s a serious problem now and getting worse. That problem is based in US oil imports and the growth of imports from China in particular. As a consumer the US cannot afford to endlessly import nearly double what it exports and pay for it with dollars that have a constant value. Won’t work – it never worked for anyone. The system also pushes itself along as the imports continue, the value gets expressed in lower and lower valued dollars which each import needs even more of them and the cycle spirals the value on down.
The credit market is far worse off than many think and if I were a prognosticator I’d be selling the idea that credit market collapse will be the break that triggers a calamity. But by itself it would be mostly a calamity for those issuing credit and those using money to store value. The old saying that when a loan goes bad the real problem is in the hands of the creditor will be proven true again. The debt load is far larger than most people think. Try adding the government’s debt, unfounded liabilities, the trade deficit converted to money as a store of value, business debts, bonds and consumer mortgage and credit card debt, well, it’s an awfully big number. That makes keeping large stores of cash, or investing in the companies that offer credit poor future choices. I have a bad feeling about this industry’s prospects and will not shed any tears should it collapse. The industry as a whole has a lot to answer for in destructing the value of contracts with the endless revisions enforced by the simple expedient of mailing indecipherable amendments, a system that has been adopted by other industries and a slew of political machinations that have made the problem possible.
That makes Gail’s article powerful in two outstanding ways, the notation about using money as a store of value and the observation about the proportion of trade deficient not cover by exports of goods and services.
Most of all is Gail has served a warning about the two most alarming economic issues of our day. We are blessed that mans ingenuity will likely solve the fuel and energy issues either early, just in time or soon enough for us to get past the problem. But the credit or banking market has just now come into focus and the ingenuity of thousands or choices made by millions cannot solve the problem and the solutions outside of a clean collapse will just make things worse for everyone. So be prepared for the bandits of credit to pick your pocket to save their skins and prolong our misery by years. That’s the fight to get ready for.
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