OIL: Conditions are Ripe for another Great Depression.

No matter which camp you fall into with respect to the Peak Oil issue, you must admit that the current high oil prices could spell economic doom for the west.

It has been reported here that the price of oil has reached yet another new high today of over $43 a barrel. The BBC reports the same story here and points out that there is little to no spare capacity to help ease prices. Even before Yukos? problems, the price of oil was hovering around $40 a barrel. (P.S. I also recommend you do some research on Matthew Simmons, a Key advisor to the Bush Administration, Vice President Cheney's 2001 Energy Task Force and the Council on Foreign Relations. An energy investment banker, Simmons is the CEO of Simmons and Co. International, handling an investment portfolio of approximately $56 billion.)

There is an excellent article titled "This Is As Good As It Gets" summing up the current economic situation in the US. Near the end of the article is a graph relating to DEBT. There are two very large peaks on the graph. One is right now. I'll give you one guess when the other one was (hint: look at thread title).

I believe that there is an end-game in play. The beginning of the peak oil crisis is keeping prices over $40 per barrel. That kind of price creates INFLATION and the FED is responding with interest rate hikes. I don't see the price of oil easing anytime soon, certainly not under $30 where it needs to be long-term to sustain our current economy.

So when inflation starts to take its toll and interest rates spike, there is going to be a major debt crisis.

With the cost of living going up, and interest rates preventing borrowing, cash strapped consumers cease to buy big ticket items. As the crisis deepens there will be massive defaults and bankruptcies leading to a banking crisis.

And for those who believe that China?s white-hot economy will help keep the world?s economy going know this:

China is also in trouble. Even though it is the fastest growing economy right now, they will not be able to maintain that for much longer.

An article discusses the pressure China is putting on world oil prices as it tries to increase reserves and avoid an acute energy shortage.



The economy is still growing but at a slower pace (7% projected) from last year's 9.7% (source). Despite this, the Chinese government is trying to slow growth even further since the economy is in serious danger of overheating (source)

China is also facing a large real estate bubble leading to distortions in the market (banking in particular). The speculative investment money flowing into the country is causing the bubble as well as a land grab for industrial space, forcing China to rent land from Vietnam to feed its people (source)

Finally, the call from the central government for a cooler economy is not being heeded (source).



It is doubtful that China can control its runaway growth that is causing distortions, a real estate bubble and a speculation bubble all about to meet up with an energy crunch.

The impending energy driven meltdown will be worldwide and no economy, no matter how seemingly strong at the moment, will escape it effects.

The emotion I feel in the face of all of this is despair with too many zombies in our society just going along for the ride, not questioning, and rampant anti-intellectualism. Nothing will be solved until we hit the wall (peak oil, climate change, collapse of economic system etc.).

The only thing to do is prepare yourself mentally for the outcome. Move beyond fear and towards acceptance/preparation.

Right now the economy is a revved up sports car heading for a brick wall, and the passengers are arguing about which radio station to listen to.

Heads up! There's trouble ahead. Get out of DEBT as FAST as you can!

What do you think? Can a new worldwide DEPRESSION caused by tight energy supplies be averted?

edit: title tweak

[edit on 10/20/2004 by Gools]

edit 2: fixed expired link

[edit on 10/20/2005 by Gools]

If OPEC decided to change their oil currency to the Euro the whole house of cards (US economy) would collapse. It would be far worse than the Great Depression.

I agree and it seems that the US is doing everything it can to prevent that from happening.

For people who are not in the know here is some excellent background focusing on the “big picture” of the world’s current geopolitical situation.

The following three articles are a collection of “Petro-Dollar” theories on war. All three take a global view of the current geopolitical pressures we see evidence of in Venezuela, the Middle East and North Africa (Sudan etc.). All three refer to the petro-dollar as the cause of many current conflicts. They are worth a good read in my opinion.

This first is titled America’s war against Europe and gives an excellent analysis of the reasons for the war on Iraq.



The article explains the Bretton-Woods deal with respect to setting up the petro-dollar and explains how dollar hegemony works. The article goes on to state:



The second article is titled Oil, Petrodollars and the OPEC/EURO Question and examines the same questions with more emphasis on the players in the Bush administration. It also goes into more of the financial details especially in light of the current debt situation. From the article:



The article then goes on to examine the pressures for replacing the petro dollar with the Euro.



The third article is titled It’s Not About Oil or Iraq: It’s About the US and Europe Going Head-to-Head On World Economic Dominance and describes the situation in great detail. From the article:



My conclusion on reading all of this material is that the Iraq war was a gamble to prevent the loss of dollar-hegemony. An essential ingredient in making this gamble pay off is forcing the price of oil down after establishing control. It’s been over a year and there is no sign of this strategy paying off.

Furthermore, in light of the tight supply (and Peak Oil concerns) even if this strategy were successful (without creating resentment throughout the oil-producing world) the market realities of a more populous Europe with a larger economy than the US, as well as an oil-hungr world, will make the conversion to the higher valued Euro inevitable.

So not only are we facing a debt crisis we are also facing a global shift in economic power.

We could only believe that was one of the reasons if they stopped Iraq from selling oil in Euros after the invasion.

Oh..wait, they did:

More information supporting this hypothesis is reported at From The Wilderness here.

Three articles on 1- the energy crisis in China, 2- the first deliberate brow-out to control the situation and 3- Venezuela's threat to cut off oil if the US does not keep out of domestic politics.

Sorry I forgot to link to this thread started by Smirkley on the recent run on the banks in Russia.

A good look at an unstable situation as well.

All of these problems seem to be creating a sort of economic "Perfect Storm".

Thanks for the input Sardion. Much appreciated.

I agree that there are many wildcards, but I do believe that the energy crunch is real and it is upon us. Of the four points you raise only the last one seems plausible to me with all of the research going on in physics.

Impending Nanotech Boom?

I wish I could believe, but I simply don't see the real value. Maybe I don't know enough about it. From what I understand it will lead to new materials to be used in high tech gadgets. The problem is all those electronic high tech toys are a waste of resources. (think obsolescense of cell phone models from last year for example). Besides I'm seeing this as simply the next dot-com tech bubble everyone is getting excited about. We are a long way from 7of9's nanoprobes!

Discovery of a vast new oil field? Highly unlikely and would only postpone the inevitable by a few years.

Natural Gas is also in crisis. Perhaps worse that the oil crisis! Here is a recent analysis with many references incorporated. Natural Gas Crisis

New Breakthrough Energy Technology? Perhaps this is what will get us out of the depression. Personally I see that as a long way off.

Thank you for reminding me of the Creative Destruction paradigm. I wish that is what we were facing at this point in time but the problems seem more fundamental to me and I'm not even an economist! I also agree that we may be facing the end of the Age of Growth which means a total rethink of our economic system which is now based on expansion and yearly profit increases.

Interesting times to be alive!

You certainly seem enthusiastic about nanotech. I hope you are right.

I'm glad you acknowledge the hype aspect of it. Take if from someone who participated in and witnessed the biotech boom and crash from inside the industry, hype happens and it’s not a positive thing. Science has been taken over by business and investment speculators in my opinion. Which is why I am a bit skeptical on this.

I hope the energy crunch is not as acute as seems to be apparent and that we have the time to reach that new economic paradigm you envision.


[edit on 10/20/2004 by Gools]

A collection of 27 articles on the looming energy crisis can be found at this link: Energy Crisis Coming Sooner Than Expected.

The articles discuss everything from the Saudi supply, the Yukos crisis, the natural gas crisis, terrorism concerns, the situation in Venezuela etc.

Lots of reading but well worth it IMHO.

Excellent information!

Sounds like things are finally moving, especially in Europe.

Could be a good sector to get into (invest, job, carreer etc.). I'll have to start looking around my area and see what is going on.

I think I will use a few of those links for a post I'm working on in the Campaign2004 Issues forum. Hope you don't mind

I have enjoyed reading your enlightening posts on the subject.

Here is my 2 cents for what its worth. The only way I can see oil being the cause of a great depression by its self is if there is a huge spike in price due to geo- political or military consequences. For instance what if Al Qaeda actually got their hands on a nuke and managed to nuke Saudi Arabia’s largest oil field.

It appears we have hit or will soon experience peak oil. When peak oil hits us there will not be a dramatic plunge in oil production but will be a decline never less causing a steady rise in prices which will help to facilitate investment in development of alternative energy sources. At that point the demand for oil in developed countries will start to decline. Developing countries will continue to use more oil due to the fact that they will most likely have to make upgrades or capital expenditures to use the new energy sources. It will be like the use of coal, which is used more by developing countries than developed countries.

Has anyone developed a method to use the Tesla coil for energy needs? Is that what UFO’s are using? They way they move makes me think they are using the earths magnetic field or an energy source such as the Tesla coil. Sorry I got of post but I couldn’t resist.

The US and the global economy is currently held aloft on a foundation of cheap money, borrowed at nearly 0% interest as leverage to support asset prices of dubious value.

If the cost of borrowing this money increases the whole thing falls apart.
An oil shock, inflation a USD crisis, increasing budget deficits etc etc pulls the foundations from this highly leveraged economy. IT IS NOT A MATTER OF "IF" but a matter of WHEN. Hedge funds, property funds, retail stockmarket players will all rush for the door.

Timing is always difficult. I've been playing this game for many years and no way is a nanotech boom or similar going to make this a soft landing.
maybe this year, maybe next. Personally my current model has it happening just prior to the "proposed" US presidential election a/w a conflict with NK. I think Bush will try and deal with it before he's removed from office and may even use the conflict to delay/suspend the election.

Either way, the last bit aside, the deck of cards will fall and YOU DO NOT WANT TO BE IN DEBT AND YOU NEED TO HAVE AN INCOME> GET ON WITH IT!!!!!
Cheers. Romeo, the happy gambler.

Thanks Sardion!
I agree the Campaign Issues board is just getting rolling.



I agree with your assessment cryptorsa1001 we will also have to upgrade and capitalise our infrastructure.

FYI on both these points I have started this thread for some feedback on the current political scene:

ENERGY: Reducing Oil Dependency






Edit: fixed link

[edit on 10/21/2004 by Gools]