[Pops]

So as not to take the bunker thread off topic, I wanted to start a new topic on economics. Here is what JayMorrison wrote in that thread:

?As a economics major back in college, I completely agree that with high energy prices and shortages, we are likely to see something very similar to the early 1970s and 1980.

We will have an economic contractionl. Initially it will feel like a recession. Inflation will rise with energy prices. The Fed will raise interest rates to slow down demand/growth.

Whereas in the past that has worked and allowed the economy to work out any imbalances. But this time it will be different. A typical recession is a few quarters where the economy shrinks instead of growing. The recovery is when we have a few quarters of growth again. But the shrinking will continue beyond a few quarters.

The energy prices will continue to climb, even with a shrinking economy.

After that it is cloudy. Since we have never had that scenario, it is difficult to understand how the modern economy will react. It is also difficult to know what sort of political leadership we will have at that point. Will it be a Carter (Kerry?) who encourages conservation and alternatives? Or will it be George Bush who invades Saudi Arabia under the excuse that the Saudis are not doing enough to get the terrorists?

I really cannot predict how the economy really reacts or how the fed responds to a shrinking economy and higher inflation.

Typically the fed raises rates to fight inflation.
Typically the fed lowers rates to get the economy growing.

How does the fed respond when those two goals and remedies are opposing forces? It hasnt happened before over a long period of time.?

-------------------------



When you increase interest on the huge personal debt - including the many recent adjustable mortgages, it seems to me that there will be a proportional blow to real asset value as the bankruptcies mount. Isn?t that the term for deflation?

US debt will be affected as well, and those supporting our huge debt might decide that we can no longer ?print? our way out. They would possibly pull out while the getting was good; there goes our unlimited credit card.

We would certainly print even more money in that case and then we?d be back to inflation again.

Deflationary Inflation.

The Big Decline.

Of course I can make statements like that because I?m no expert, as you all know.

How do you see economics playing out as energy costs rise.

[smiley]

Well, unfortunately, I think world history is quite clear on the subject.

The most efficient way to deal with such a crisis is to start a war.

(But you have to make sure to win it).

[Mark_i]

$this->bbcode_second_pass_quote('Pops', 'S')o as not to take the bunker thread off topic, I wanted to start a new topic on economics. Here is what JayMorrison wrote in that thread:

[Pops]

Sorry Mark!



Those guys are gold bugs I think, but nonetheless I agree with every thing they and you say.

And this is without considering big increases in oil or retiring Baby boomers!

And what is the BIP?

[JayHMorrison]

$this->bbcode_second_pass_quote('Pops', '
')When you increase interest on the huge personal debt - including the many recent adjustable mortgages, it seems to me that there will be a proportional blow to real asset value as the bankruptcies mount. Isn’t that the term for deflation?

[Pops]

As money becomes cheaper assets rise proportionally. Got that.

The problem is that assumes relatively the same amount of people employed. With more and more money going offshore for energy (I’m assuming here that domestic renewables can’t replace oil) people spend a bigger proportion on necessities. Just like were doing now – my local grocer and gas station DO figure into my Personal Core Consumer Price Index.

So as people do less discretionary spending, all the jobs relying on that spending evaporate. At that point my home will certainly fall in relative value as the demand falls and interest rates rise. And if I live in an area traditionally a long commute from large employment centers my home certainly would be hit harder wouldn’t it?

[smiley]

When I was young my father showed me an old German banknote of 10.000 Deutschmark. I was stunned because at that time the Deutschmark was worth about 0.5 Euro. He then explained me about inflation.

I have here a link to the story of German hyperinflation. I would recommend you to read it because it's a very valuable lesson. It shows how quick these things can go.

http://www.pbs.org/wgbh/commandingheigh ... ation.html

I myself find it frightening similar to the situation the USA is in now. The money and debt creation have become the trademark of the current administration and slowly I'm starting to wonder if there is still a way back.

But even as Bush's and Greenspan's attempts to cripple the economy fail, Peakoil will surely succeed in bringing this scenario about.

The solutions? Well as I said war is one of them.

The other one is to press the reset button. Cut your losses and move on to a new currency. One which is based on real assets (like the old silver backed dollar). This will eradicate all the bubbles and debt, but will render all your savings worthless.

My guess is, that this is the path that the government will be forced to take. If you want to prepare for peakoil, hyperinflation is certainly one thing to consider.

[Licho]

While oil wll be primary reason for inflation, there is strong possibility, that goverment will start to regulate it's price, and perhaps use rationing system.

This, if done right, can stop inflation, but can hardly stop initial world-wide recession..

About countries affected first - OPEC will try to keep prices low as long as possible, they will do anything they can do prevent world economic depression. This can result in treaties with key countries about fixed imports for fixed prices or similar arrangements - moving problems with price for domestic markets instead of world market.

Many countries also have huge potentional reserves in gasoline prices, that are currently high because of taxes. Taxes can be reduced or eliminated to soften peak-oil effect.

So I believe that long-term world-wide depression will be avoided, but it's almost certain recession will come durign before transition process is fully started.

About money and inflation - communists here made this thing in 50's: They have created new currency with exchange factor 10:1 if you had less than $50 000 in your bank or cash. But any accounts or people having more than 50 000 got exchange factor 100:1 for money exceeding 50 000 limit..
So people lost their savings- in fact this was the aim, "reset". Surprisingly this didn't hurt economy or living standard, because most companies were already nationalized.

[JayHMorrison]

$this->bbcode_second_pass_quote('smiley', ' ')
If you want to prepare for peakoil, hyperinflation is certainly one thing to consider.

[JayHMorrison]

$this->bbcode_second_pass_quote('Licho', 'W')hile oil wll be primary reason for inflation, there is strong possibility, that goverment will start to regulate it's price, and perhaps use rationing system.

This, if done right, can stop inflation, but can hardly stop initial world-wide recession..

[Pops]

$this->bbcode_second_pass_quote('Licho', 'W')hile oil wll be primary reason for inflation, there is strong possibility, that goverment will start to regulate it's price, and perhaps use rationing system.

This, if done right, can stop inflation, but can hardly stop initial world-wide recession..

[Chicagoan]

It is just amazing how in a mere half century, America went from being the world's largest exporter of oil into the world's largest importer. It also went from being the world's largest producer into the world's largest consumer of manufactured goods. Even if peak oil was not an issue, this country would still be in bad shape.

Depression is unavoidable at this point. The modern economy cannot withstand negative growth for very long. Whatever takes its place depends on how people react. The question is how people will react. The last worldwide depression saw the rise of the worst dictatorships in history. The Soviets completely reorganized the Russian economy, but Stalinism proved to be just as unsustainable as capitalism. I think that whatever emerges will start out as an informal economy. As the "official" economy collapses under its own weight, this informal economy will become more and more important. Such processes have occured in African countries that have experienced economic decline over the last 50 years.

[Mark_i]

$this->bbcode_second_pass_quote('Pops', 'S')orry Mark!



Those guys are gold bugs I think, but nonetheless I agree with every thing they and you say.

And this is without considering big increases in oil or retiring Baby boomers!

And what is the BIP?

[Licho]

$this->bbcode_second_pass_quote('', 'L')icho wrote:
About countries affected first - OPEC will try to keep prices low as long as possible, they will do anything they can do prevent world economic depression.

OPEC will do anything to prevent a decline in price; period

[Barbara]

I'm as skilled in economy as my cat, but I think you're talking about "stagflation": that veeery bad situation when you have recession+inflation (usually they don't come together).
Commentators here in Europe began two years ago to say that USA are in big troubles. Everybody here is expecting USA economy to crash, and we are shaking because our economies are very interconnected (is this correct in english?;)).
And of course, those commentators don't mention Peak Oil...

[The_Virginian]

$this->bbcode_second_pass_quote('', 'E')verybody here is expecting USA economy to crash, and we are shaking because our economies are very interconnected

[JR]

Great thread, I'm learning a lot!




JR (Jodi)

[mainster]

[EDIT: removed verbatim quote from dieoff site, see link to get it]

http://dieoff.com/page236.htm

[OilBurner]

Mainster, please bear in mind that most of us here have "been round the block a couple of times" with this stuff and presenting excerpts from dieoff.org without comment doesn't really add anything to the debate.

Go on, entertain us and add some of your own comment to it?

[JayHMorrison]

I was about to quote the dieoff response when it got edited. ""Curses, foiled again"

That is certainly a worst case scenario that is possible in certain sections of the world. But to paint the entire world with the dieoff scenario is unrealistic.

Look at India I work with Indian guys (I am in Info Tech) and I got them discussing politics of India. They have about 1.1 billion people in a county that is about 30% the size of the United States. They are mostly food self sufficient for now. Still a very rural/farming based society. They are not using much in the way of high tech farming. They do use fertilizers and pesticides, so yields will decline. But they are still very primitive in their farming level.

There is no shortage of food. There are farms everywhere.

The reason I do not subscribe to the dieoff scenario for the world is because most of the world already lives with low energy.

The US, Europe and Japan will likely see big yield declines with the loss of energy. Genetically Modified foods may help to reduce the energy inputs needed for agriculture. But the US/Canada is already a huge food exporter. We can survive yield declines in this country if we are just feeding ourselves. We also have only 300 million people and A LOT of land that can be converted back to farmings. Our subsidies keep a lot of land UNUSED.

The key change is that food will not be transported over long distances. Your diet will become much more localized.

Oil is not going to disappear in year one of peak oil. If there is a dieoff, it will be long after I die of old age and I am currently 33. There is enough food overproduction and overcapacity to feed the world. In America I think it would do us all some good to reduce our diet by 1000 calories per day.