What Next?

[Crewleader]

by Jim Kunstler

Isn't that a question, though....

The Peak Oil story was never about running out of oil. It was about the collapse of complex systems in a world economy faced by the prospect of no further oil-fueled growth. It was something of a shock to many that the first complex system to fail would be banking, but the process is obvious: no more growth means no more ability to pay interest on credit... end of story, as Tony Soprano used to say.

There was a popular theory among Peak Oilers the last decade that the world would enter a "bumpy plateau" period when the global economy would get beaten down by peak oil, would then revive as "demand destruction" drove down oil prices, and would be beaten down again as oil prices shot up in response -- with serial repetitions of the cycle, each beat-down taking economies lower -- the only imaginable outcome being some sort of quiet homeostasis. This scenario did not play out as expected. It was predicated on a mistaken assumption that all systems would retain some kind of operational resilience while ratcheting down. Anyway, the banking system was mortally wounded in the first go-round and the behemoth is dying hard.

The last desperate act of the banking system in the face of Peak Oil's no-more-growth equation was to engineer species of tradable securities that could produce wealth out of thin air rather than productive activity. This was the alphabet soup of algorithm-derived frauds with vague and confounding names such as credit default swaps (CDSs), collateralized debt obligations (CDOs), structured investment vehicles (SIVs), and, of course, the basic filler, mortgage backed securities. The banking system is now choking to death on these delicacies.

http://jameshowardkunstler.typepad.com/clusterfuck_nation/2009/03/what-next.html

[Warpy]

1. It's still a slow motion collapse

in many ways. During the Depression, people said the money seemed to vanish overnight when the stock market collapsed. What they meant is that the fake money propped up by buying stocks on margin (credit) evaporated all at once.

Our money is evaporating a little more slowly than theirs did, but it will all evaporate before things begin to get better and we go back to building wealth rather than amassing paper profit.

The only good part so far is watching all the smug looks on the Reaganites dissolve into sheer panic. I've waited a long time for this.

In any case, it would be foolish to expect anything to improve over the next year and a half, at the barest minimum, as all those delicacies churn their way through the financial system's inflamed gut. At the end of the next two years, we should be able to see what's left and formulate a plan for what to do about it.

[Terry in Austin]

2. Meanwhile

The temporary drop in fuel prices has led most people to hit the "snooze" button as far as figuring out how to face a low-energy future.