The broad American public voted for "change" but they thought
that meant a "changing of the guard." Out with the feckless Bush;
in with the charismatic Obama... and may this American life now
continue just as it ever was. The change actually coming will be much
more than they bargained for, namely our transition from a wealthy
society to a hardship society. The sharp break is a product of our
years-long failure to reckon with the energy realities of our time.
We're still confused about that, but it's hard, otherwise, to ignore
the massive disappearance of capital, asset values, livelihoods,
domiciles, comforts, and necessities.
The price of oil is suddenly down to an astounding $40-odd per
barrel. Those of us studying the Peak Oil story have said that the
"bumpy plateau" years of peak production would be expressed in
tremendous price volatility, and for exactly the reasons now evident --
that the high-price phase would mangle advanced economies, that they
would fall back in paralysis, then respond anew to oil price collapses
by straggling up again, only to be crushed again when a resumption in
demand for oil drove the price back up.
What was not so generally anticipated was the wholesale
destruction of global finance in the first phase of this period. This
has now occurred so comprehensively that we know the banking business
will never be the same again. It has also accelerated other plot-lines
in the story. One affects the global oil industry itself:
a lack of capital to go forward with the new oil projects that were
designed to mitigate the present depletions in old oil fields. The
result of this quandary is as likely to be oil shortages in 2009 as
much as an extremely sharp snap-back in oil prices. The oil markets
themselves are changing in the face of financial disruption. Between
pirates lurking off the Horn of Africa, and a shortage in
letters-of-credit that enable the shipping of anything for delivery
between nations, the allocation system is impaired. This affects poorer
nations the most, and when they don't get their oil shipments,
conditions in these nations get worse. People lose incomes. Ethnic
strife ramps up. All this will make it harder to move oil from the
places where it is produced to the importing countries.
So
much artificially-generated pixel "money" is being pumped into the
system now that it will eventually overtake the quantity of capital
currently vanishing in the form of exposed securities swindles,
unwinding bad debt, and imploded worthless counter-party contracts. The
pixel money will express itself as super or hyper inflation, lagging
from 6 to 18 months from the time it was actually introduced in the
form of bailouts. For the moment, money is moving into the presumed
safety of US Treasury paper. Personally, the safety of this is not
something I would presume. But in the current deflationary stage its
hard to find any other place to park cash, and when asset values are
crashing everywhere, cash is king. Gold is physically unavailable in
the form that non-millionaires usually buy it in, ounce and half-ounce
coins.
President-elect Obama has announced his intention to kick off a
massive "stimulation" program when he hits the White House "running" in
January. Early indications are that it will be directed at things like
highway repair. If so, we will be investing long-term in infrastructure
that we probably won't be using the same way in ten years. But I doubt
there is any way around it. The American public can't conceive of
living any other way except in a car-centered society. Anyway, some
parts of our highway-bridge-and-tunnel system are already so decrepit
that they pose a menace right now, and the clamor to direct
"stimulation" there is already very strong -- backed by all the
fraternities of engineers.
Stimulus aimed at perpetuating mass motoring will be a tragic
waste of our dwindling resources. We'd be better off aiming it at
fixing the railroads (especially electrifying them), refitting our
harbors with piers and warehouses in preparation to move more stuff by
boats, and in repairing the electric grid. Unfortunately, our tendency
will be to try to rescue the totemic touchstones of everyday life,
things familiar and comfortable, regardless of whether they have a
future or not.
The ominous forces gathering out there will defeat these efforts
and everyday life will reorganize itself some other way consistent with
the single greatest trend:
the force of contraction. Every sign we see is pointing in that
direction, from the inability of the earth's ecology to support more
human beings, to the dwindling of mineral and energy resources, to the
destruction of farmland, to mischief in the climate. We just don't know
how badly things will fall apart in the meantime, or how kind (or
cruelly) people will act in the process.
Mr. Obama would be
most successful if he could persuade the public how much more severe
the required changes are than they currently realize, and inspire them
to get with program of retrofitting American life to comply with these
realities.
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My new novel of the post-oil future, World Made By Hand, is available at all booksellers.