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Okay. I lied. This is important and everyone needs to read it. It's long, not particularly exciting, and it's vitally important to understanding what's going on with US foreign and domestic policy. Take the time.
Peak Oil Without the Tinfoil Hat
For those who haven't noticed, I'm one of the Peak Oil doomsayers. I generally write about Peak Oil with a tone of impending Armageddon. There's a reason for this. If the citizens and government of the US sit around in denial, as has been done up until now, the resulting economic and social collapse will resemble, well, a biblical Armageddon. You know, global war, domestic strife, starvation, all that troubling stuff. But this is purely worst case, and I've been trained to work from the worst case. Consider it a professional habit, if you will. On the other hand, take a look at gas prices, food prices, and Iraq. Imagine what will happen in three to five years if this trend continues. See my point?
The current gasoline(and general petroleum) price spike may be a natural swing in prices. But even so, fuel costs are at record highs. For those who would dispute this claim, bear in mind that earlier spikes were due to severe, induced shortages, and that prices did not return to historic levels. Also couch your arguments in real disposable income, not in inflated dollars. A commodity's value is relative to purchasing power, not some hypothetical number. Also note that since earlier peak prices were due to supply restrictions, it might be reasonable to consider the possibility that the current price spike is due to short supply. Whether that shortage is real or induced is open to debate. I propose that in either case, the current shortage is a harbinger of an impending catastrophic shortage. And I can provide real world justification for that claim.
Peak Oil is simply a function of oil production reality. Given any finite amount of oil beneath the Earth's surface, there is some maximum rate at which that oil can be recovered. No matter what you do, you can only get it out of the ground so fast. Faster recovery can be envisioned, but the technology is cost prohibitive. It isn't worth the effort. The petroleum industry assumes that Peak Oil will occur sometime this decade. There is debate as to whether it has already occurred, or whether it will not occur until as late as 2010. (Some claim it may not occur until perhaps 2014, but they are at the fringe of the argument, much like those who claim we have already passed the peak.) It doesn't matter. In any case, the peak is imminent, and cannot be avoided. Note that it is not a bunch of tinfoil hatters who make this claim. It is the oil industry who's survival depends on understanding and exploiting petroleum reserves who make this claim. It doesn't matter if they're wrong. Right or wrong, the oil producers are nearing a point where they can no longer increase the flow of oil into the world's supply system. This is the most important point. The available oil reserves will soon reach a point where the day to day supply can no longer grow. Yes, the fact is, once peak is reached, the supply will start to drop. That isn't important. The important thing is that it will no longer grow.
What's the big deal? We'll just learn to conserve. The SUV brats will finally get theirs. Wrong. China is moving into the industrial age. The single brightest point for the auto industry in the last five years has been the explosive expansion of automobiles in China. Roads have been closed to bicycles to make room for cars. China has magically acquired a middle class, and every last one of them wants a car. China's oil consumption, to fuel those cars, build those roads, and support all the technology that goes with an exploding middle class has driven them from an non-entity in the oil market to the number two consumer behind the US in just a few years. And as number two, they are trying harder. This phenomenon, and expanding industrialization in third world countries (where do you think the infrastructure for all those outsourced jobs is coming from?) is driving world petroleum demand rapidly higher. Demand is exploding while supply is flattening out. Maybe that's why gas prices are rising?
Okay, this puts a real urgency into the need to conserve. But we've survived shortages before, and we'll survive them again. Well, last time, our economy had a distinctly different structure. First and foremost, we had an industrial base second to none. One way or another, we had the infrastructure to meet our own needs, and the energy shortage was hardly more than an inconvenience. Today we have a "service economy". What that means is that our economy is driven primarily by services. Read "banking". Yep. We survive by counting money. How can that be? Well, it can't. Our economy has become a pyramid scheme based on a single fact. Almost all the worlds oil is traded in dollars. The mechanism is complex, but basically, oil producers trade oil for dollars, then they are stuck with big piles of dollars. Consumers need dollars to buy oil, so they work whatever deal they can to get those dollars. Thus the US has the highest standard of living in the world, and all we have to do to maintain that standard of living is print more dollars. The oil producers don't want piles of dollars moldering in vaults, so they buy US Treasury Securities. At present, we have to sell $50 BILLION worth of securities a month just to make the interest payment on all those "loans". But, since we cover our mortgage payment by taking out loans, we have to take out bigger and bigger loans to keep covering our payments. This works great as long as the oil trade grows. But let it go flat and oopsie!
The current rise in oil prices, from a cynical point of view, is most likely due to a massive shortfall in Security sales in the last half on 2003. Why is gas higher? Cause the supply of gas has flattened out and the growth has to come from somewhere. Yep. A really cynical bastard would propose that gas is breaking two bucks a gallon so Uncle Sam can meet the mortgage.
Assuming that even paranoids can have someone out to get them, so what? After a few shocks, the supply and demand will even out and we'll have time to come up with alternatives. Well, everything you buy is trucked, flown, barged, or shipped from somewhere. Local produce is at best a cutsie gimmick at some supermarkets. Local manufacturing is almost a thing of the past. When I was a kid, a lot of moms picked up extra cash at a local garment factory. That was in a town of 3000 population. Anyone know of a garment factory in their neighborhood? Anybody willing to pay $150 for a T-Shirt shipped in from China? The key here is that we've obliterated our local manufacturing base in the last 40 years. Hell, we've obliterated our local retail base in the last 20 years. Think Wal Mart. What's Wal Mart gonna do when oil hits $75 a barrel? What are you gonna do when Wal Mart sits empty? This is not doomcrying. It is a predictable function of oil production reality, combined with observable growth in demand. And due to incredibly poor foresight, our economic strength, strength needed to see us through this crisis, is linked to the very source of the crisis.
All of you who regularly claim this is tinfoil raving, please take the time to do the research. The crisis is real, and it is the institutions responsible for overseeing petroleum production that are crying wolf. The economic factors are obvious if only you take the time to look. This isn't an Illuminati plot. It is an inevitable result of past national policy. And it's important. We, as a nation, must demand that our leaders address this immediately and aggressively. Continued denial will only allow the crisis to grow into a catastrophe. John Kerry can't fix this. Only a concerted effort by the nation can contain the damage. This is no longer avoidable. No matter how intense your denial, your life will be changed enormously and irrevocably in the next ten years. If we, as a country, don't wake up and take action, we are fools, and we will pay a price.
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