The Risk of Collapse

You cannot grow without energy.  You cannot sustain growth without a sustained energy source.  This is true for an individual as well as a nation.  Our current paradigm of economic growth is based on the past surplus of hydrocarbons, specifically oil.  The population of the U.S. is in denial.  We are discovering 1 barrel of new oil for every 4 barrels we consume on a worldwide basis.  The Chinese know this and are negotiating deals around the world to insure energy supply to fuel their massive growth.  The U.S. is spending money on warfare and welfare rather than focusing on energy efficient infrastructure creation.

The current alternative energy sources will not offset the decline in oil supplies.  We need three new “Saudi Arabia’s” to offset the decline, yes, three!  In 2008, 42 of the 50 largest oil producing countries have passed their peak oil production.  The global decline rate (depletion) of reserves is about 9% per year and exploration companies are not finding enough to offset this decline rate.  If and when shortages begin, economic destruction ensues.

The current economic system is based on an infinite monetary growth debt-based paradigm.  This system is based on fiat currency, fractional banking, compound-interest debt based growth.  Those with unlimited access to the currency or financing extract wealth from the producers of goods and services- you and me.  This system requires those in control to keep our faith in financial instruments positive.  Perception is more important than reality in this system.  Credit default swaps is an instrument that allows you to make more money by destruction of the underlying asset than to invest in its growth.  The increase in CDS’s for state and local government bonds means that the big money is betting on the destruction of these entities.  Uh oh.

What do UK Energy Agency (Jan),  UK Task Force (Feb),  Oxford University & University of Kuwait (Mar), U.S. Military (Apr), and Lloyds of London (Jun) all have in common?  They have all warned of coming shortages in supply of oil versus demand or Peak Oil.

Consumers are stretched to the limit and the cost of oil above $84 assures us of increasing the tension on the ability of the consumer to financially cope with the monthly cost of survival.

State governments are moving toward a 30% shortfall of revenues versus expenditures.  There are two ways to make up the difference: cut services and jobs or raise taxes… or both.  The tax burden of the average citizen is already moving up.  The Bush tax cuts are set to expire this year but I suspect they will be renewed to some degree.

There is no way for the U.S. to cover its total obligations except by printing exorbitant amounts of money.  With no restraint of a Gold standard, you can expect this to happen.  The only question is “when”.  More costly energy will only serve to force action sooner rather than later.