230 comments on For all practical purposes the markets are closed right now
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This is all very bad news for peak oil mitigation. Economies will weaken, perhaps go into depression, as credit dries up. As we've discussed here many times, the energy markets (oil and natural gas) are priced at the marginal barrel - todays supply demand situation trumps predictions of future supply/demand imbalances. If there is plenty of oil available for the forseeable future (several months), oil prices drop.
If a credit collapse leads to depression, etc. we could have $40 oil, maybe higher maybe lower, but enough for policymakers, who are just now getting a whiff about oil depletions acrid scent, will ignore the Peak Oil warnings and go back to focusing on economic growth, jobs, etc. New wind, solar and other energy flows that were starting to be competitive at high oil prices, will look far less attractive to entrepreneurs and policy people at $50 oil or at $30 oil. After the stock market crash in 1932, oil went from $1.43 a barrel recent high, to 10 cents a barrel and stayed low for many years.
If demand destruction trumps depletion, what kind of signals will that send??
Then when the economy starts to reload, we are that much further along depletion, and have lost several more years of infrastructure planning and change
Dang, Nate, that would be true if the US was the whole world, but it's not. Instead, the US would just be priced out of the oil market, and "our" oil would just go to the higher bidder overseas. We are probably going to see a Weimar type hyperinflation that leaves just about everything produced overseas priced out of reach.
the credit crunch is not just going to affect the US - globalization/international trade has effectively connected ALL countries at least in the OECD. If we sneeze someone else will get the flu - some countries milder than others. China has built massive infrastructure and production capacity in last 5 years - if US goes into deep recession what do you think happens to China? Everything is linked - thats part of the problem
But China has 10% growth. An economic crisis, for them, means 5% growth or thereabouts. At that range, you still have demand growth for oil and other energy sources. That is likely to be enough to keep the markets tight, given that our own elasticity is not huge.
5% growth for China is not just an economic crisis, but also a political crisis. Those who have looked at China over the past number of years know that the place is a giant mess, physically, socially and economically. Slow down the growth that everybody over there depends on even slightly, and you can have giant riots on your hands in no time. And the Chinese gov't doesn't play games in using force against its own people, especially when they're protesting the gov't (see Tiannamin square).
IF the above scenario happens, and China's growth slows, it is possible that the Chinese economy could collapse, since it was built on the predication of high growth rates-somewhat similar to what we're seeing here in the US credit crisis, but more extreme (with possibly more extreme consequences/results).
Best hopes for a soft, managed landing (sorry Alan)
Franc (penguinzee)
I agree with Nate and Penguinzee on this. China is far from immune to any downturn here. Moreover, the Chinese revolution is only 58 or so years old -- there are many millions who still remember the revolution. The Chinese gov't is a giant labor contractor -- should the demand for goods in the West shrink significantly, they have a tremendous problem on their hands. The situation is quite different from the 30s -- whatever one might think of Stalin, the SU at that time was to a considerable extent immune to the economic disaster in the West -- but not the military consequences of course.
"Wars will come and governments will change, but the land and the people will go on." -paraphrased
-from "The Good Earth" by Pearl S. Buck
Dave: Stalin? The Soviet Union in the 30s? Open your eyes-China's economy is already almost as large as the USA. This was done in less than 30 years.
"China's economy is already almost as large as the USA."
Source please? By GDP China's GDP in 2006 was less than 20% of the US, and was still behind Germany and Japan, according to the IMF.
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)
Shaman: CIA Factbook has it at approx 77% of USA (PPP). China is already the largest consumer market in the world for every product except autos. It is the second largest exporter. Does that sound to you like a country 20% the size of the USA? At the current pace, China will be the largest consumer market in the world by 2015 and by far the largest exporter.
Thanks for the source. I wish they had more detail about their methodology on PPP - it would appear that they are valuing the Yuan at four times its official rate. I must say I'm a bit skeptical about that, but that's a gut feeling, not based on inside knowledge.
It's tough to predict China's trajectory - we're in uncharted territory.
Massive importer of food, but strong agrarian base. Low domestic energy production, but very low energy requirement for basic survival. Catastrophic environmental depletion, but lots of resources in the empty quarter to the North. And the biggest standing army in the world.
Low domestic energy production?!
Chinese coal production is huge (and then there's Daqing)! The biggest increase in global primary energy supply during the last 10 years has very likely come from exploding Chinese coal mining.
Sure, domestic demand is even greater than the domestic supply, but you can say that too about another vast energy producer, the USA.
You call it uncharted territory. The Chinese could simply call it another "five year plan", one which involves a certain staged withdrawal and some "healthy" austerity measures.
The capacity for China to revert back to one bowl of rice per day, two sets of green pajamas and a rusty bicycle is not to be dismissed. I think a lot of people are underestimating the Chinese government's willingness to strike an abrupt 180 degree turn seemingly overnight.
Why do you assume collapse is linear?
I highly doubt that international markets will fare well during a US recession or depression.
During the market rout this last week did any exchanges in any other nations avoid tumbling?
It is a global market now, not national.
No assumptions. Just saying that it will take more than a recession to stop demand growth. It would take an outright depression, or some other kind of meltdown.
It's by no means impossible, of course. But oddly enough, in that situation, energy probably won't be the biggest issue of the day.
Thats my point. Energy IS the issue of the day, but its going to be obfuscated by other issues and when the average person next notices it, its teeth will be sharper and bigger.
Jerome- has this/will this credit selloff effect wind project financings?
Project finance is always late compared to other types of financings (lots of inertia, long lead times for the underlying projects, etc...), so we're still in boom mode right now.
And renewable energy is especially booming right now, so no lack of work. In fact, I worry about how insane the end of the year is likely to be for me.
Even if the markets crash, renewable energy, thanks to both favorable regulation (guaranteed tariffs, i.e. no volume and no price risk, are going to be a risk banks love in the context of a market meltdown) and the overall favorable context (global warming, energy independence, etc...) is unlikely to suffer as much as other sectors.
Shanghai wasn't correlating....
Not the FXI BS, the actual SSE was up thurs, not fri, and again today. It's the only market that bucked on thurs, i do believe. Honestly, China has 1.2 Trillion in USD paper, so they can sterilize any downturn in their economy for awhile. Like some have noted, they are much larger than most people think. We're all stuck with this podunk image of China, but when you do the numbers they are doubling in under seven years. Our image is off each month they add that 1% more.
Revisit history...why did the ROARING twenties happen? We were loaning massive amts to Britian after WWI. The money supply was exploding, then the unthinkable happened. The pound sterling defaulted and the dollar became defacto world reserve currency. What's changed? The US is in debt to the Chinese (& Japan, but lets simplify) and the Yuan will become the new world reserve currency. It's hard for you patriots to accept I know, but it's going to happen and history will once again rhyme.
http://thefinancedude.blogspot.com
I've commented on that for the last year and a half, that I believe it will be the yuan and not the euro that will succeed the dollar. Though far from identical, there are some interesting parallels between the historical fall of the pound and the rise of the dollar versus the current fall of the dollar and rise of the yuan.
"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone
But isn't that 10% growth fueled by both international sales and increased domestic consumption by a rising middle class? If international sales drop, won't that then impact the middle class and their spending thereby creating a ripple effect and a much larger drop in the economy?
Jerome,
Last few years have given China high growth in GDP (9.5%, non agricultural), but surprisingly low growth in employment (3%).
The explanation could be that capital was too cheap for labor.
Another interesting tidbit:
Via the Big Picture
90% foreign sounds very suspect - one usually reads estimates around 60% quoted, and they can only cite "internal figures" meaning they have no source.
Except that the Chinese government is fully prepared to lay waste to twenty years of ventures into capitalistic experiments and plunge their citizenry back into 1949 at the drop of a hat, even if they have to kill off a third of their population in order to make it so.
Please remember that a purge in China is not limited to size, severity or duration, but rather linked to a goal set forth by the old moustaches who own or control the bulk of economic power in the region.
If China sees that it is in its best interests to punish the West or "teach it a lesson" they will do so, even if they must invent a new "Gang of Four" and restart the purges.
China must prevail, or die, and something tells me that we won't be seeing the largest nation on earth dissolve itself just because a few rich capitalists wish it to be so.
That dog might hunt in the rotted corpses of Europe and the North American continent but not in the Asian Empire.
And by this action we WILL see China ultimately prevail and re-emerge as the top superpower in the world.
China plays for the long term win, it only dabbles for the short term glory, and it only gambles what it is willing to lose.
China is and always has been willing to lose a lot in order to make a point.
Spot on, Nate. Peak Oil is a problem that politicos are all too willing to sweep under the rug and a $40 barrel gives them a brand new broom!
Demand destruction is the way this system works. Recession, here we come.
The big question I can't answer is whether China has built up a big enough middle class to absorb a significant amount of the production that now comes to America. I believe that's their main strategy but I doubt they have achieved it yet.
If they can make that crucial transition we'll find out quickly enough because they will be able to weather the recession and keep increasing their oil use even as our use declines. That should provide a floor for the marginal price of oil.
$40 oil falls under the catagory of Desperate Wishfulness. You will never, ever see oil priced that low again.
Never say never. I am very bullish on oil but fully expect to see $50 oil in the next few years. I wouldnt make a bet on $40 oil, but I would on $50. (and also $150)
The demand is there world-wide that other nations will pay the equivalent of $70 USD for a barrel of oil. The price will not go down. Someone else will buy it first. Like I said, Desperate Wishfullness. I'll bet you believe CERA and OPEC figures as well. You will see the error sooner than later.
Cid: IMHO, the size and strength of China is underestimated greatly by almost all Americans. I think this is caused by the psychological effect of growing up in a country which was the undisputed economic global leader. Current estimates project China's consumer market surpassing the USA by 2015.
Brian: Where does that estimate come from. It strikes me as not credible. In 2006 the US GDP was over 13 trillion dollars, China's about 2.6. For their domestic market to catch ours, they would have to grow 5 fold. I know that GDP doesn't match "domestic consumer market" exactly, so what the measure here?
China's GDP in comparable prices (PPP) is $10.2 trillion for 2006. PPP is the more accurate indicator to use in this case, as most of the US GDP of $13T is spent in services which in China would cost tens of times less.
source please?
https://www.cia.gov/library/publications/the-world-factbook/print/ch.html
Thanks Levin - Brian also gave me that source up above. Must say that I'm skeptical, but that's a different issue.
Sham: CIA Factbook. When someone tells you that China's economy is 1/5 the size of the USA, doesn't it occur to you to question that? How is it that an economy 1/5 the size of the USA manufactures almost every product sold in the USA? The USA taxpayer owes well over a trillion dollars to this tiny country.
Brian, yes, of course I question it, I question IMF stats just as much as I question CIA ones.
All I know for certain is this; I traveled to China, held Yuan in my hand and spent them. This was in 1999, so certainly the situation has changed, but at that time my dollar equivalent in Yuan did not buy as much as my dollar would have back home.
The other aspect of this that has me skeptical is knowledge of how capitalism works. Yes, a substantial amount of manufactured goods are made in China. But in most cases these are subcontractors of American, Japanese and EU companies. We are not looking at a case of Chinese manufacturers directly selling to American retailers (except for some very large retailers like WalMart, who essentially turn them into subcontractors anyway). And knowing how capitalism works, I know these companies are taking their share of profits out of the supply chain.
Shaman: Almost none of the profits is being reinvested in the USA- it is being invested in China. Future wealth flows from current capital investment (that is how capitalism works).
Brian: It matters not where the profit is reinvested from the perspective of capital. National boundaries are of no interest to capital except for the tax burdens. That is why capital has moved manufacture to China and elsewhere. It cares not one wit about the nation or its workers. The ownership class remains pretty much the same(although certainly the expansion of the global economy allows for the expansion of that ownership class to include some Chinese).
That said - do you have anything other than the CIA numbers (not dissing them, just wondering about how you corroborate) that suggests the PPP for China is so great?
I didn't include this before, but the CIA PPP number concerns me in the sense that such a large difference between nominal GDP and PPP would support the assertion that Chinese military expenditures are of concern (note that the Factbook puts US mil expenditures at 4.06% of gdp compared to China's 3.8% of gdp (not ppp).
Already in 2008, probably, China will become the world's largest producer of motor vehicles.
Source? And how much of the production chain is is owned by the Chinese? Doing the work is not the same as owning the work.
As far as global capital is concerned, the USA is no longer a "rising star" - China is that now. Nor is the USA any longer even a "cow" to be milked dry -- they've just finished doing that over the past couple of decades or so. Now the USA is quickly becoming a "dog" to be sold out and killed off. Disinvestment in the USA is now the order of the day.
Cid,
I am wishing for high oil prices, not low ones, for many reasons - not the least of which it will give people correct signals in changing consumptive patterns.
There is a big piece being overlooked here. The financial markets size DWARFS the energy markets size. Last year one hedge fund, Amaranth, had natural gas positions, on and off balance sheet, that were in excess of the annual consumption of natural gas in the USA - over 20 trillion cubic feet - the unwinding of these positions caused a 'crash' in nat gas prices. Don't believe for a second that this couldnt and won't happen to oil at some point in the future when all hedge funds come to understand peak oil and bid up the price via leverage etc. $50 oil, while fundamentally difficult to imagine, is almost a mathematical certainty, given a long linear time series.
Perhaps you were on vacation when my "Peak Oil - Whom to Believe? CERAiously" and the subsequent Parts II and III, were posted.
Virtually all asset prices should fall across the board in a deflation (ie as the money supply contracts substantially). What it amounts to is a bull market in cash, because everyone will be looking to cash out at the same time. I would agree with Nate that $50 oil is extremely likely, but that doesn't imply greater affordability if purchasing power is falling more quickly than price.
I would also agree that in the longer term oil prices should head much higher, and if they are higher in nominal terms, they will be far higher than that in real terms (ie adjusted for changes in the money supply). Most people would probably be priced out of the market entirely.
Yup
Higher highs. higher lows. (Matt Simmons has a great graphic of this somewhere.). The volatility will hamstring policy just as much as the absolute price rise. Look at nat gas for an example. 2 mild winters, and now 2 mild summers in a row means we are just a little more complacent on replacing NG in the electricity and heating mix.
I don't know that oil will hit $50 again. Im just pretty confident in normal or accelerated volatility which could kiss that price at any time...
What we do know is that the EROEI of oil has fallen by close to an order of magnitude over the Oil Age. If demand falls enough so that the planet can return to consuming only the easy oil, then the price might fall - assuming all the sunk costs in the more expensive new oil are ignored.
Just how is demand going to fall that much? By the industrial world shutting down? [Well, yeah, probably.]
I drove through a bit of western maine today to visit my son at summer camp. Outside of a few cottages, everything in Steep Falls, Standish and Bridgton is courtesy of petroleum. There are huge rock walls everywhere - it used to be farmland but is now grown over. Currenly populated with BMWs and fat Americans eating ice cream and french fries.
cfm back in Gray, ME
Just to clarify. All we know is that EROEI of DOMESTIC oil has declined from 100:1 in the 1930s to 30:1 in the 1970s to 10-17:1 in 2000. We can estimate global EROI on oil but no one has done this analysis (probably because the analysis wouldn't be worth much due to the lack of reliable data.)
We can surmise that world oil will follow the same best first mechanics that the US/Louisiana did, but we really don't know.
Amaranth unwinding was after much Katrina damage was restored, the drilling for NG intensified, and numerous LNG facilities were brought online or under construction. They get more than 60 mmcf/day per well in some areas.
There was an argument about why bread is not 4 loaves for a dollar anymore even though there were more loaves on the supermarket shelves? It is because they increased the supply of dollars faster than the supply of wheat, energy, labor, transport, etc.
If you get deflationary trends with people not using oil as much and producing more of it, then the price of oil might dip. I figure there is a traffic jam somewhere in the world as I write.
In going to a poor underdeveloped nation, what one recognized is the absence of street lights at night. It was like a person had one's headlights and everything else was pitch black. They are working on making cheap diode lights...if you build a better light bulb, the world will send a ship to your port.
At $50/barrel, I would expect:
1) China to be spending some of that $1 trillion on strategic oil reserves. Likewise India and anyone else with spare $.
2) Norway, Kuwait and other reserve rich (oil and money) nations to cut back production for "later".
3) Major oil users to hedge like crazy ! (See airliens)
Alan
Alan,
(See airliens)
"Airliens" is right...hard to see the airline industry as profitable in a debt/diesel constrained future.
It was not a typo >:-)
Alan
I am, BTW, Short Delta. My first short sale ever. 12% gain in a week (beating that younger brother of the Pepsi Chairwomen).
A wise short, IMO.
If I were back in hedge fund land (the old paradigm...;), I'd be scouring stock lists to see which companies had a)alot of debt and b)had debt coming up in the next 6-12 months. These companies are going to be really hurt - a)their financing costs will be dramatically higher than they were, meaning corresponding drop in profits or worse b)they won't get financing at all...
Nate and Alan,
Take a look at Landry's restaurants-just had $400,000,000 in debt called.Their quarterlies are late because of an options backdating scandal. Looks to me like a possible bankruptcy. They have 83% institutional investors, so I'd guess they'll drop like a rock on Monday.
Bob Ebersole
I got you both beat. 147% increase in my forex account last week. If I do that for the rest of the year, I will be able to buy my own island for post PO.
Was someone betting on the end of the Yen carry trade in all this mess? Nice call. More coming, probably.
Arkansawyer here:
If oil goes to $40, a 12 oz Budweiser will sell for fifty cents.
Maybe in "New Dollars" once a few zeroes have been knocked off. (For example, $400,000,000 becomes New$40.) There is abundant precedent worldwide for that ploy.
Nate,
Although I pretty much agree with your post, I very much disagree with the idea that the economy will "reload." In fact, I believe that the second window of opporunity, the first being in the '70s, to make the changes necessary will be lost. In fact, I would go so far as to say that it will be lost, essentially, forever.
We all use the Depression as a reference point and the only thing that got the economy going was WWII. As a Depression baby, I know how it impacted financial decision making throughout my family, essentially to the day they died. I see no reason why a similar psychological response would not be made today were the economy to tank.
Todd
Todd,
I know WestTexas has mentioned in context with his ELP suggestions the oil patch depression that lasted from 1988 until prices started running up in 2002. That's 14 years, longer than the Great Depression. His attitudes, and mine, have been shaped by that downturn. My grandfather was a young man with a family in 1929, and he saved bent nails and glass jars until his death. So yes, economic hard times shape all of us and our families.
There's a huge difference between the current economy and that of 1929. In the early part of the 20th century we were the low cost manufacturer of the developed world, as our economy changed from a farm economy. And, now, most people are in jobs with intangible products-the service economy. And, Nate is very possibly right that demand destruction could outpace depletion and oil prices fall to $40 a barrel.People don't need gasoline for a repossed SUV to drive to a foreclosed McMansion.
Whether that will happen, especially with the rapid devaluation of the dollar and other economies rapidly changing away from links with the dollar, I just don't know. My crystal ball has a few smudges and is murky.
If its not too late, people need to focus on the economise parts of the ELP program, and the produce part too.
Bob,
If everyone economizes then there will be no "reloading" of the economy as Nate states. This would be especially true were there Depression II. My point was that the window of opportunity to do something will have been lost since capital will not be available. Now, it could be argued that the millions of unemployed people will be put to work on public works projects. But I don't see that as realistic in a credit drought...unless we are talking about a dictatorship of some kind.
Todd
Todd,
You are 120% right on, and that includes the dictatorship. Will the masses be used to build mass transportation? Why would they?
There will be demand destruction alright, but it will be for credit, not for oil. Lenders will not be willing to lend, and borrowers will stop borrowing.
For oil, there is a huge latent demand already, and it will only increase. Once production is known to be going down, everyone and their pet canary will be scrambling to pick up what's left. Much more of an economy will be diverted towards oil reserves. It's now or never.
The largest increase in demand will come from armies. Without sufficient oil, countries will be impossible to defend. Oil will equal power.
Few people in the decision making business have overlooked or forgotten that the lack of oil was what did in Germany and Japan. Today's armies use far more oil, per soldier, than did those 60 years ago. Use your army to get the oil to feed the army. In other words: Iraq.
"especially with the rapid devaluation of the dollar and other economies rapidly changing away from links with the dollar"
Hey, I thought we had agreements with each of them, they can't start breaking away from the...
A very European view, and the way it should be. Extremely unlikely to be handled this way in the US, the people that own the government will bail themselves out and pass the cost on to the taxpayer.
As far as the Chrysler deal word here is that the banks changed the arrangement and now both Cerberus and Daimler have to to contribute an extra 2bn (each) to get the deal done.
What seems dead is the Allison deal. Hard to see how GM and Ford can make it to the end of the year even with massive UAW givebacks during the current contract negotiations. GM is in a position to force a strike and subsequent bankruptcy as they reportedly have over 1m unsold vehicles, but both are technically in default.
EDIT, post was intended as response to original post by Jerome.
sadly, I have no doubt that, even in Europe, it is the weaker members of society that will bear the brunt of any recession/unwinding, as usual. What is likely and what should be are, as often, quite different animals... but the difference gives political action a purpose, I suppose.
Todd,
I am generally in your camp, however remember that Peak Oil, if it is indeed now, means we will start the inexorable decline of production but it also means its the highest production ever. Depletion, even if its over 5% annualized, can easily be overcome by demand destruction. The question we are debating I guess is if lower oil prices can overcome a credit crunch depression.
Well of course all we need now is to get involved in a war to get us out of this mess! All this peace is hurting the economy! ;)
If the price of oil drops significantly, won't that be a sign that many people cannot afford to buy oil?
If I can buy gas at 3 bucks a gallon today, but tomorrow have only 50% of my current purchasing power, will I be able to spend very much on gasoline at half the price?
I might be forced to focus on food and medicine and then see if there is money left for gasoline.
Likewise, corporations and governments will need to re-prioritise spending to some degree. Even cheap petroleum products will not find as much demand when people are scrambling to find food, water, and shelter.
This looks to me like an opportunity for the powers that be to make the de facto "Corrupt Corporatist Command Economy" more transparently so, without all the phony democratic trappings and so-called humanitarian values.
Look for the supply of alcohol, marijuana, cocaine,and heroin to grow, and for common folks to be made to live more like serfs than ever. The rich will finance the sure bet that the rabble will need lots more dope to keep them in line.
Of course, there will be openings for new bike businesses and such.
Its happening. I know how those on the 2nd bottom rung in my generation (not the bottum rung, these guys have jobs, but the shittest jobs) live with themselves, and that is quite often through escaping via drugs.
I wonder if its a coincidence that the price and availability of drugs has been on a continual decline in the last 10 years I have been paying any attention?
However, my point of view is that its the demand that is growing... more and more people not really wanting to think too deeply about anything and taking the easy way out.
I wonder what would happen if there were no drugs (and alcohol...?) I imagine that the current system would not survive very long...
But wouldn't a recession be an excellent time to built such infrastructure -- cheap labor, oil, steel, ....
Yes, it would. But the prices signals won't be to build oil and steel infrastructure if the clearing price on those products gives signals of long term abundance.
I agree that a fall in oil price is a possibility if a recession develops in the next year or two and that it would send an incorrect signal about investment in energy-efficient technology and lifestyle. This reminiscent of the views of John Michael Greer as expressed in his Archdruid Report blog. His assumption is that such recessions and falls in commodity prices will effectively prevent proper adaptation which could otherwise save industrial society. His view is of a "cyclic decline" of recession, fall in commodity/energy prices, lack of ELP adaptation, partial recovery, increase in commodity/energy prices, followed by another recession - i.e., the worst of all possible worlds.
No cornucopia, no quick ELP-style adaptation caused by sky-high energy prices, no sudden collapse followed by rapid rebuilding of s sustainable society. Instead, the long, lingering, uneven decline over many decades he says is characteristic of the decline of complex societies and very difficult for societies (but maybe not aware individuals), to mitigate against.
You have to make people hungry enough to work for their food (or kill for it: which is one and the same to some, who would die before working in dirt)
We have spent the last 100 years replacing the 'drudgery' of hand labors with cheap oil and gas. The logical thing is to replace the oil we are using with hand labor and put people back on the land to raise food (the money of the near future).
"I am trying myself to choose an expression which will accurately convey the whole of the idea I have formed of it, but in vain; the old words despotism and tyranny are inappropriate: the thing itself is new; and since I cannot name it, I must attempt to define it.
"The first thing that strikes the observation is an innumerable multitude of men, all equal and alike, incessantly endeavoring to procure the petty and paltry pleasures with which they glut their lives. Each of them, living apart, is as a stranger to the fate of all the rest--his children and his fellow-citizens, he is close to them, but he sees them not;--he touches them, but he feels them not; he exists, but in himself and for himself alone; and if his kindred still remain to him, he may be said at any rate to have lost the country."
-Alexis de Tocqueville, 1835
Thanks to Thom Hartmann for quoting this in "Unequal Protection".
Didn't the horse collar spell the end to the human being as "best motor"? An electric tractor powered by hydroelectricity will still be much more effective than people power.
I doubt that we'll have people replacing tractors on farms--the value of work produced by human powered activity is outweighed by the cost of producing the premium food they require; humans are not much more efficient in changing food-to-work than internal combustion engines, and they have huge overhead too (20% ICE efficiency versus 25% for people?). Before we convert to electric? Well, a tractor can do a lot of work on a tank of soybean oil, doesn't need to be fed all winter, and besides, we don't have the hand tools to make people useful anyways.
We will have people "salvaging" copper to wire up more electric tractors.
I believe Marx called it "the commoditization of all relationships."
Lower nominal prices (ie unadjusted for changes in the money supply) and affordability are not the same thing. In a credit deflation, nominal prices would fall due the contraction of the money supply, but this would be very unlikely to lead to increased affordability. For affordability to increase, prices would have to fall while purchasers still had the same amount of money, or the same access to credit, and this is exceptionally unlikely to be the case for most people. While prices would fall, purchasing power would almost certainly fall much faster, which amounts to a price increase in real terms.
Nate, I tend to agree with you. I don't believe energy will be the immediate problem. Economic collapse will essentially remove demand and also disrupt the economy's ability to organise itself or respond to events. The true effects of climate change will then make themselves fully felt by degrading food security and destroying human habitation, throwing social systems into disarray. Finally, when humanity makes its call on energy resources to save it, it will also fail due to depletion; leaving civilisation totally vulnerable to collapse.
That doesn't even include the effects of geopolitical turmoil and mass migration caused by the three main drivers; economy, ecosystem and energy.
Economic failure is only the beginning and the whole sequence of events will take decades to unwind. I really don't believe people, even here, have fully internalised what lies ahead. The whole of civilisation will be more-or-less helpless in the face of an escalating crisis.
People will adapt, this will completely change the demand map/patterns. Like I said on today's Drum Beat; what will happen when people stay put and stop moving around, stop buying consumer junk and frivolous consumption. Life will go on but differently.
Triumvirate of collapse - Economy, Ecosystem, Energy