especially as we can get those low low prices at Walmart

through the Chinese subsidies in fuel and labor.

We'd have to sell more stuff if we needed to spend more on oil. That size of flow of money into the US would give oil producers a lot of money to buy goods and services that we produce. They'd spend that money.

This petrodollar recycling has enabled a lot of oil dollars to flow right back to where they came from in an endless upward spiral.

The real crunch for the US could come when this cosy system -setup since the war- of the dollar being the defacto reserve currency begins to falter and we may be seing serious cracks now. Already Venezula, Iran, Russia and others are talking of oil priced in baskets of currencies, Roubles, etc. As they increasingly control the supply over the next decade a new oil purchase currency could emerge as an alternative (The Arabs originally wanted to be paid in Gold but where convinced to take paper).

At this point the US really could find itself in a difficult position as then no one would need to buy its currency in order to purchase oil. As a result Interest rates would have to rise significantly in order to bolster the currency and attract foreign cash inflows. There would be little room for the type of manouvre that Greenspan and Bernanke pulled off without toasting the dollar and the US Economy.

Nick.

As a student of The Derpression, I can say that its first victims were in the farming sector, which started its slide into depression in 1920-21, and was very immesierated by 1929. A combination of weather and depressed prices crippled most farmers who used credit to expand their production to take advantage of very high prices caused by WW1 (Europe's farms essentially shutdown).

A second point is the new electric appliance based consumer age could only count on about 1/4 of the populace as buyers for its new products; and those folks that bought the new-fangled radios, toasters, etc., only bought one (and those products were built to last--planned obsolescence hadn't been put into practice yet) because our modern "Buy, Buy, Buy" mantra and its plastic cash hadn't become ingrained. And people were still prudent with their money--They saved it in anticipation of the hard times that always come, which slows down the velocity of money.

Remember, there were no "automatic stabilizers" operating in the economy then--unemployment and disability insurance, social security and medicare (devices the neoliberalcons have tried very hard to destroy). So before 1929, the US economy was already in a world of hurt, unless one was a member of the Leisure Class engaged in Conspicuous Consumption (Great book, by the way--Theory of the Leisure Class by Veblen). Perhaps the best small book to document this is "The Economic History of the United States, Volume VIII: Prosperity Decade, From War to Depression 1917-1929" by George Soule (1947)[1964]. When we talk of the great discontent in agraria, it must be recalled that by FRR's innauguration in 1933 those folks were in many cases at the end of thier ropes. We talked about this just last night, and I asked the question: Imagine if the Joads (Grapes of Wrath) had modern firearms (there's currently more than one firearm per person in the USA, not counting military weapons)?

This is similar to the logic that says since energy is a smaller portion of the GDP we have less to worry about with scarcity of oil. My own take is exactly the opposite, a greater portion of the GDP depends on a smaller amount of an increasingly scarce resource.

Economists!!!!

No farmers, no food.

No oil, no farmers. TEOAAWKI

This reminds me of the libertarians who think we should eliminate farm subsidies and "let the free market work." As if food is no different from Tickle-Me-Elmos.

Don't get me wrong; our farm subsidy system is flawed. But to eliminate it? That would be crazy. There's a reason why food production is subsidized in just about every nation. Namely, the customers will starve to death waiting for the free market to work.

Jason, I couldn't agree more. But, why are you surprised? I don't know about WELL, however, Sustainable Laytonville isn't doing squat even among those who showed interest. Why? My guess is that it hasn't come up and hit them with a 2x4 (so why expect economists to be any different). The only activity is that three of us meet for a long 1 1/2-2 hour lunch once a month. And, we DO discusss economics along with peak energy and how the future might play out. We even bring "handouts" and these often contain material pertainent to economics although I have to admit that I usualy bring handouts dealing with survival/making do. As an aside, I don't think the others would care if you came up to participate. Our next lunch is either Jan 2nd or 9th - I can't remember. Give me a call if you're interested. I'm in the phone book.

In the case of Ag, I am especially worried that a lot of people believe that they'll just stick some seeds in the ground and get instant food if production Ag fails to deliever the goods.

Todd

Someone did a great chart a few months ago--an inverted pyramid--showing how the rest of the economy is so dependent on the tiny number of food & energy producers. Here's the article:

http://www.energybulletin.net/32718.html
Upside down economics
Kurt Cobb, Resource Insights
The entire economy stands on the shoulders of agriculture, forestry, and mining (especially the extraction of oil, gas, coal and uranium) and on the utilities that deliver the energy mined in usable form.
first published July 29, 2007.

This method for depicting the economy was suggested to me by two things.

First, Liebig's Law of the Minimum states that an organism's growth is limited by the amount of the least available essential nutrient. In the case of world society that nutrient would be food, though many would argue that fossil fuels are the essential nutrient since so much food production depends on the use of fossil fuels and their derivatives including fertilizers and pesticides.

Second, a piece by Dmitry Podborits argues that it is nonsense to say that the U. S. economy is less vulnerable to oil supply disruptions today than in 1970s because it produces twice as much GDP per barrel of oil. Instead, Podborits suggests, we are more vulnerable to oil supply disruptions because we have so much more GDP balanced on each barrel of oil. The same argument might be made with respect to agriculture which in the United States in 1930 employed 21.5 percent of the workforce and made up 7.7 percent of GDP. In 2000 the numbers were 1.9 percent of the workforce and 0.7 percent of GDP. We are balancing an ever larger total economy on an agricultural economy that on a relative basis is shrinking. Certainly, we are getting more efficient, but are we becoming more vulnerable?