[MonteQuest]

In my first post on this site 2 ½ years ago, I saw a decline scenario that no one seemed to have broached as yet. I called it the Peak Oil Perfect Storm. That original thread can be viewed here: The Peak Oil Perfect Storm

I made several updates over the years, but now I think it is time to present The Peak Oil Perfect Storm II and allow our newer members to voice their views. While “peak oil” in of itself seems to be a harbinger of disaster, there are many other factors at play that I feel will exacerbate our ability to forestall a hard-landing. Here is an update on some of the things I see, with a few additions from the original:

First: With the lowest interest rates in 40 years, huge war and domestic deficit spending, and a huge tax cut, we are still having a great difficulty finding any real economic growth pre-peak. Much of our economic growth has not been as a result of a growth in real income and wages, nor in the production of real goods and services. It has been financial speculation. 40 % of GDP growth by some estimates. Much of the recent run-up in household debt has been mortgage-related; low interest rates have spurred a refinancing boom that has allowed consumers to extract equity from their homes to pay for a variety of goods and services. Borrowing against home equity is generating billions in spendable cash fueling our GDP growth. The refi-ATM.

Second: In 2001, a study by then Secretary of the Treasury, Paul O’Neill, projected future “entitlement” expenditures (Social Security, Medicare, Veterans benefits, government retirement, etc) would exceed revenues by $44 trillion dollars. It estimates that closing the gap would require the equivalent of an immediate and permanent 69 percent across-the-board income tax increase, or a 45 percent cut in Social Security and Medicare. If policymakers continue on their current course with Social Security, Medicare, and Medicaid, the nation will be forced to choose among devastating tax increases, the elimination of nearly every other federal program, and budget deficits large enough to jeopardize the entire U.S. economy.

Seventy-eight million baby-boomers are going to start retiring at 62 next year, the first year they will be eligible to collect Social Security. As they do, the number of retirees in America will double. At the same time the workforce supporting them will grow by a mere 15%. Solving this problem will hurt like hell.

Third: People no longer have any rebound ability. The Commerce Department reported recently that the savings rate for all of 2006 was a negative 1 percent, meaning that not only did people spend all the money they earned but they also dipped into savings or increased borrowing to finance purchases. The 2006 figure was lower than a negative 0.4 percent in 2005 and was the poorest showing since a negative 1.5 percent savings rate in 1933 during the Great Depression. (2004 savings rate = positive 1.7%)

In coming decades, a growing fraction of U.S. workers will pass their peak earning years and approach retirement. In preparation, workers should be building their nest eggs and paying down debt. Instead, many of today's workers are saving almost nothing and taking on large amounts of adjustable-rate debt with payments programmed to rise with the level of interest rates.

Interest rates: 5.25%, the 17th consecutive quarter-percentage-point increase since June 2004 with projections of 5.5% by April 2007. (Interest rates June 2004 = 1.0%)

Increases in stock market and residential property wealth have substituted for putting aside money each month from their paychecks. As the US baby boomers retire, they will further depress the savings rate as they draw down their savings in an effort to make up the difference between the salaries they earned on the job and their smaller Social Security payments.

However, as long as the government can print money faster than you can save it, you can’t get ahead…as inflation gobbles up any gain. Nevertheless, we need an increase in domestic savings to help correct our huge Current Account Deficit (CAD).

http://www.economagic.com/em-cgi/data.e ... /psavert+2

2006 Personal Savings Drop to 74-Yr. Low
http://apnews.myway.com/article/20070201/D8N0V3C00.html

Fourth: The 2005 trade deficit equaled 5.8 percent of this country's gross domestic product. In 2006, the deficit was equal to 7 percent of GDP, up from 6.8 percent of gross domestic product in the third quarter. (2004 = 5.1% of GDP)

This resulted in a $850 billion dollar trade deficit for 2006.

The only way that the US economy can improve its current account balance is if it exports more but doesn’t spend or borrow more, or starts saving, both public and private. There’s absolutely no other way.

Fifth: Water shortages. We are experiencing record droughts in many areas, especially the West. Although Lake Powell has seen some improvement, it is still 100.57 feet below Full Pool,and only 48.09% of capacity. Snow-pack is 75% of average. 34% through water year 2007, water storage has fallen by 221,068 AF and total outflows have exceeded total inflows by 431,416 AF.

http://lakepowell.water-data.com/

Also, by decree of the Colorado River Compact of 1922, they must release 8.5 MAF each year for the states of CA, AZ, NV, and the treaty agreements with Mexico. The entire economy of the West is tied to this water. And to compound matters, the historical flows have never exceeded 7.5 MAF since the pact was signed in 1922.

Australia? Best of luck down there, mates!

Driest year on record in parts of southern Australia

$this->bbcode_second_pass_quote('', 'I')t was the driest year on record (back to 1900) across parts of the south, most notably in northern and parts of eastern Tasmania, northeast Victoria and adjacent parts of southern NSW and the ACT.

[TreebeardsUncle]

Hi.
In America these days, increased debt is interpreted as economic growth. Of the three options you propose for dealing with entitlement spending -- raising taxes, cutting programs, or going deeper into debt -- the US will choose the third and continue to use a smoke and mirrors campaign to encourage people to think that the budget deficiet and trade debt don't matter.
As far as cultural inertia goes, look to the DOE-UC Berkely biofuels development project as a good example of the great effort that will be made to keep the cars running with as little change in consumers lives as is feasible. That means converting croplands and third world forests etc to liquid fuel production. Electric cars will not be used because they don't break down enough. Trains will not be used because their use does not suit the interests of the oil, auto, and mortgage banking industries.
Fuel sources will progress from oil to coal to nuclear with some biofuels. Global warming will, of course, intensify, though sea level rise will be a moderate effect in this century except in a few vulnerable areas like south Asia and Lousiana where it will have severe impacts.
A good question is when will the peak oil, global warming, and indebtedness effects reach a point where they qualitatively change the way of life in such privileged influential regions as the US, Australia, and Britain.? Will China be impacted more severely first?
If the US and/or China are severely impacted than that will seriously disrupt world trade probably more than any other country being severely impacted would.

G

[MonteQuest]

$this->bbcode_second_pass_quote('TreebeardsUncle', ' ') A good question is when will the peak oil, global warming, and indebtedness effects reach a point where they qualitatively change the way of life in such privileged influential regions as the US, Australia, and Britain.? Will China be impacted more severely first?

[gg3]

Oh my, we're all so cheerful tonight that we could practically get up and dance!

There is no avoiding the fact that it will take only a slight breeze to blow down this house of cards, and when it comes down it's going to be a mess. See also http://www.antropik.com, all things overly-complex must eventually come to an end.


And there's no avoiding the fact that the planet is overpopulated by a factor of two and it's got to get back in balance one way or the other. The only good thing about the apparently inevitable 3.5 gigadeaths is that one can hope the generation that has to bury all of those (or thermally depolymerize them for fuel) will end up with a greater reverence for life than the present generations.

[Colorado-Valley]

Hi Monte,

What about those of us who are now out of debt and putting aside some gold and silver as a hedge for when things become difficult.

Are we just fooling ourselves?

[shakespear1]

Unless the majority of the political leadership in the US lives on the Moon, I must assume that they are aware of the pending problem. However due to their inability to talk straight like George Galloway, they will not confront the issue head on. Thus the problem will have to manifest itself in its fullest dimension BEFORE anything will begin to change.

Regarding the following

$this->bbcode_second_pass_code('', 'That means converting croplands and third world forests etc to liquid fuel production.')

Please look at Mexico at the moment where strikes have begun due to tripled prices on tortillas. The corn is going somewhere else where they are willing to pay more. The USA

Thus the above solution is NOT a solution. Plus remember that crops are dependent on weather. So far weather that I am observing in Poland is anything but stable. Hence crop yields will also be unstable.

[Daculling]

$this->bbcode_second_pass_quote('shakespear1', '
')Please look at Mexico at the moment where strikes have begun due to tripled prices on tortillas. The corn is going somewhere else where they are willing to pay more. The USA

[topcat]

Other factors to add to the list:

If/when one of the big hedge funds blows up and takes out the entire financials market when some of their massive derivatives go south.

Any one of the countries that holds trillions of US$ decides to cut their losses and be first in line at the checkout counter, and the other countries run for the door.

Either of these could happen without notice. UUUUGGGGGHHHHH

[Mesuge]

Well, at some point they will attempt to depopulate the place. Viruses can be modified to attack only according to certain racial genetic profile properties of their host. That's relatively old technology.

So, whom and on what scale are they going to depopulate?
That's the #1 question. Based on the most threatening demographic and eco destruction trends it will for sure include parts of the ME and Asia. Africa could be part of the plan also but it could be dealt with simply pricing them out of market with $80-120 barrel of crude with similar effect, although externalities like tropical forrest destruction would render it less feasible.

Now, you have also real nuts from within this gov. sponsored research who might go alone and release some universal global strain of these bioweapon viruses. Specifically, many friends and pupils of Dr. Pianka have indicated that to finish this "civilization" in short order would be very beneficial.

I don't necessarily agree with them 100% but they have the means, sound argument, and determination to bring it about or to be manipulated in achieving similar/partial results..

[IanC]

This is clearly a case for the people leading the leaders. The higher you go "up" the political foodchain, the more beholden the politician is to preserving the status quo. On the city, county, and state level where constituencies area smaller and the stakes aren't as high for the leader, I think there is a chance for change to happen.

Don't expect McCain, Clinton, Obama, or anyone else to commit political suicide be voluntarily becoming the next Jimmy Carter. It's obvious that Bush and his buddies are running out the clock so the next president will need to get up in front of the nation and make their "Moral equivalent of war" speech in a cardigan sweater. Then next president will need to be the grown-up, but probably won't be.

Change will happen at the local level when City Councils decide whether or not to stripe more bike lanes and provide bike locker facilities downtown, when counties decide to set aside money for soon-to-be-strained public services, and state governments decide to curtail the amount they spend on new roads, instead investing in repairing rail lines.

I think that this is how change happens. Waiting for SOMEONE to do SOMETHING is naive and unrealistic. Preparation happens with millions of small decisions.

-IanC

[MonteQuest]

$this->bbcode_second_pass_quote('Colorado-Valley', 'H')i Monte,

What about those of us who are now out of debt and putting aside some gold and silver as a hedge for when things become difficult.

Are we just fooling ourselves?

[MonteQuest]

$this->bbcode_second_pass_quote('Daculling', 'Y')es, Monte. You left out one very near term problem. As the corn gets used for ethanol production the Mexicans starve... resulting in the collapse of the Mexican government and mass migrations to el norte. We have seen nothing yet as far as illegal immigration. How will the US people react to 20 million arriving all at once? I don't like illegal immigration but I also don't like what we might do to these people...

[JPL]

Hi Monte

My main concern is feedback loops.

Collapsing economies > less investment in exploration & extraction, also less money for energy and transport infrastructure.

This causes further economic chaos which then causes another iteration of the loop, etc., etc,.

In my scenario the second half of the Hubbard curve becomes an abrupt cliff - all remaining resource has to be devoted to food production with perhaps enough left over for a last war or too.

In this 'possible future' the remaining tetra-barel of oil stays in the ground. That which was uneconomical to extract in a pre-peak world becomes economically impossible ever to get out in a post-peak one.

Same goes for the cost of extracting dimminishing grades of uranium, copper, coal (possibly???) etc., Sudden cut-off for all high-tech, high-cost mining operations.

All wrapped up & back to the Stone Age within about 10 years of peak. See Catastrophe Theory for the maths...

JPL

[MonteQuest]

$this->bbcode_second_pass_quote('JPL', 'H')i Monte

My main concern is feedback loops.

Collapsing economies > less investment in exploration & extraction, also less money for energy and transport infrastructure.

This causes further economic chaos which then causes another iteration of the loop, etc., etc,.

[Jack]

Very nice analysis. I wonder - did I miss the growing instability in the Middle East?

It appears that the political stability of the region is declining, and could well fail. Were that to happen, oil production might simply cease - and the oil fields would burn, as they did in Kuwait after Saddam's invasion. No further production from the fields would be likely, and the time for mitigation would be reduced to a few months - the time for the last tanker to get from Saudi Arabia to the refineries.

More and more, I think we set our doom (in both senses) when we started the Iraq festivities.

[MonteQuest]

$this->bbcode_second_pass_quote('Jack', 'V')ery nice analysis. I wonder - did I miss the growing instability in the Middle East?

[RdSnt]

Dmitri Orlov's article had one striking comment, paraphrasing;
"Doing nothing is likely the best moral path..."

His point being, that since we are not going to dodge the chaos no matter what we do, and a large portion of the global population is going to die, to take an active part in bringing this about is morally questionable.

I take this to mean prepare yourself and family but do not prosthelize solutions.

I rather think that a precipitous collapse would be the best for future recoveries, in that there will be some resources (in particular recoverable oil) remaining, to draw on.

I anticipate a catastrophic collapse, but I hope there are enough people and infrastructure remaining to continue advancing knowledge and people. I'm a big advocate that we as people should expand to populate other worlds.
Will this lead to a better type of people and better solutions to our current path, no, not likely. However, there is a better chance of that than retreating to the cave.

I have all the skills and experience to survive in pretty much any circumstances, yet I firmly believe we must continue to move forward. Retreating means the end of Man.

[TonyPrep]

$this->bbcode_second_pass_quote('Gideon', 'I')t's truly staggering what we face.

[TonyPrep]

$this->bbcode_second_pass_quote('RdSnt', 'I')'m a big advocate that we as people should expand to populate other worlds.

[SchroedingersCat]

Let us not forget public health. The healthcare system in the U.S. is extremely dependent on energy and money. Health insurance will grow ever more costly as people lose their coverage and the rest of the pool pays more.

Vaccines, clean water and air, responding to epidemics and pandemics all take large amounts of money and energy.

The first horseman we see might be Pestilence.