Preparing for a Post Peak Life (2009) - Impact and Response

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Part 1 — The Story of Oil • Part 2 — Rebuttals • Part 3 — Impact and Constructive Response (20:13)

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Notes

Slide: Preamble

Link to interview of Sadad Al-Husseini.

Slide: Scenario Results from 2005 Hirsch Report

Peaking Of World Oil Production: Impacts, Mitigation, & Risk Management, Hirsch, 2005.

Link to Hirsch presentation.

Slide: What's The Status Now?

Link to interview of Dr. Robert Hirsch.

Slide: We Are Still Addicted to Oil!

Using these papers as a basis:

  • Mitigation of Maximum World Oil Production:Shortage Scenarios, Hirsch, 2008
  • Delays Will Tighten Global Oil Markets (PDF), CIBC World Markets, Rubin, 2008
  • The Macroeconomics of Oil Shocks (PDF), Philadelphia Fed, Sill, 2007
  • Accounting For Growth: The Role Of Physical Work (PDF), INSEAD, Ayres and Warr, 2004

I've written a more full discussion on the rate the economy will decline as oil declines here:
Estimating the Economic Impacts of Oil
Some people are just now learning the connection between oil and the economy:
Consequences of the Oil Shock of 2007-2008, the paper itself is here.

The CNN article Forget $100 oil. $80 oil is a problem outlines the key issues.

The link between energy and the economy is being explored more fully at the Biophysical Economics Conferences. I'm often asked why I don't include a discussion on net energy in the video. Although I might still, I think the case can be made without bringing in that concept (also known as Energy Return on Energy Invested or EROEI). The biophysical economists (rightly, I believe) are demonstrating that the energy sources left provide less net energy for our use than the ones we're currently using. In a nutshell, we used to get 100 barrels of oil back for every barrel we "spent." Now we're down to under 20 to 1. How low can this ratio go and we can still run an advanced civilization? The current guess by Charlie Hall, a primary researcher on net energy, is about 5 to 1. Learn more with this set of articles.

Slide: Early Staircase Model

The core of why collapse is inevitable is the fractional reserve banking system. From the Reserve Bank of Dallas website:

"Banks actually create money when they lend it. Here's how it works: Most of a bank's loans are made to its own customers and are deposited in their checking accounts. Because the loan becomes a new deposit, just like a paycheck does, the bank ... holds a small percentage of that new amount in reserve and again lends the remainder to someone else, repeating the money-creation process many times."

This lending of the money many times means the banks are leveraged at least 10 to 1 (allowed by law) and often over 20 to 1 when they skirt the rules. In boom times, this feature allows money to enter the system faster — thus allowing the economy to grow as fast as people and businesses can borrow money. However, as it becomes difficult to pay back debts due to declining oil production, we are left with a debt overhang. In this situation, all banks become insolvent as real asset values (the amount the market will actually pay for an asset) fall below what is on the bank books. Many are insolvent now but the Fed has rewritten the rules to allow the banks to keep operating in hopes a rebounding economy will re-inflate the asset values. This whole situation is very precarious.

Complex systems like economies often fail or collapse (Soviet Union, Argentina, Iceland right now):
The Failure of Networked Systems: The Repercussions of Systematic Risk.

Dmitri Orlov writes often of the Soviet experience of collapse. He has created a collapse model with the following stages:

  • Stage 1: Financial collapse
  • Stage 2: Commercial collapse
  • Stage 3: Political collapse
  • Stage 4: Social collapse
  • Stage 5: Cultural collapse

He points out that because of peak oil financial and commercial collapse are unavoidable (and perhaps political collapse, too). However, he points out that we must fight to keep social and cultural collapse from occurring. Learn more of Orlov's experience of Soviet collapse with Essential Dmitri Orlov.

Some valuable books to read to understand how complex societies fail are:

You can also watch Noah Raford at the London School of Economics discuss our impending collapse.

Slide: Fossil Fuels Allowed Higher Food Production

To learn about the connection between population and fossil fuels see Zabel's paper here.

Slide: Possible Future Scenarios

Four energy futures from FutureScenarios.org.

The Transition Town movement is a global effort to prepare communities for peak oil, climate change and financial collapse. If you have a group in your community, you can connect with others who are preparing. If you don't have a group yet, consider starting one.

Slide: Have You Found Yourself Repeating These Stories?

Stories are a fascinating area of study (see also "cultural narratives" and "discourses") because significant problems are dismissed outright when a prevailing story and a problem say opposite things. These problems are called "out-of-context." Peak oil is just such an out-of-context problem. A person's story (or their worldview or cultural narrative) prevents them from integrating evidence that contradicts the story. In fact, often a person who presents the evidence is seen as "crazy" or a "scaremonger." I like to say that out-of-context information "bounces off" people.

Ignoring out-of-context problems can lead to terrible effects. An earthquake researcher in Italy recently attempted to warn people of an impending earthquake but the local officials stopped him and accused him of scaremongering:
Italian earthquake: expert's warnings were dismissed as scaremongering.

A "scaremonger" (tongue in cheek) who does excellent work is Richard Heinberg, author of Peak Everything: Waking Up to a Century of Declines (a must-watch video of his introductory speech).

Slide: Virtual Assets Become Mostly Worthless

The impact of declining energy on the financial system cannot be overstated. If businesses and individuals do not have the energy to pay back their debts, massive defaults are the result. For a short version of what's likely to happen, watch this video of Colin Campbell explain how the markets will react to declining oil production. 

The situation is actually much worse than that because our monetary system has a basic design flaw in it. In our monetary system all money comes into the world as debt. We mistakenly call this money an asset (or wealth) when it is really a future claim on real physical wealth — it's actually a liability! We are in the perverse situation that we think we are increasing the wealth of the world as world currency increases while in fact we are increasing future liability on the underlying physical wealth. Each time a new dollar (or Euro or Yuan) enters circulation, we add a new claim for future resources at the same time those resources are diminishing (not just oil).

Clearly, this fundamental error in our monetary system cannot continue forever. Without reform, which is difficult to see happening since most people think the money they are accumulating is 'wealth' (the job of educating everyone is enormous), this system can end only in collapse. Although we are in a brief period in which fossil fuels allow this bubble to continue expanding, future claims (all money in the world) already exceed the planet's capacity to meet those claims. When this bubble eventually pops (as all bubbles must), since it deals with the fundamental system we use to run our economy, the fallout will be extensive. It is wise to recall what Voltaire said, "Paper money eventually returns to its intrinsic value — zero."

Frederick Soddy (winner of the Nobel Prize in Chemistry for his description of isotopes) described the absurd situation we have created early in the 20th century. See Committee On Monetary and Economic Reform Frederick Soddy - and - The Doctrine of 'Virtual Wealth'. M. King Hubbert again raised the topic in a seminar for the MIT Energy laboratory 1981 (Two Intellectual Systems: Matter-energy and the Monetary Culture).

If all money is debt, declining oil could mean the collapse of our economic system as it pops the bubble. This is more than a non-zero probability, in my view: it's a virtual certainty. 

Slide: The Bottom Line

There are now so many ways for the world economy to fail that there is little sense in making a specific prediction. It could happen via a credit crisis, a fiat currency collapse, a worldwide stock market crash, spiraling deflation or hyperinflation. The important point to understand is that our economic system requires growth or it collapses and declining oil production means the economy is going to contract — leaving us with hundreds of trillions of dollars of debt that can't ever be paid back.

Slide: Don't Depend on Official Projections

The graph is from Societe General Cross Asset Research.

Slide: Create a Local Currency

Local currencies must be designed well or they will not work well (money will collect in certain places and not move around). Start with the Wikipedia article then investigate Local Exchange Trading Systems.

Slide: Our Communities

James Howard Kunstler summed it best in his book, The Long Emergency: Surviving the Converging Catastrophes of the 21st Century:

"I believe there is a course of action that is appropriate to what we face, and is actually inevitable, whether we go there voluntarily or have to be dragged kicking and screaming into that future: the comprehensive downscaling, rescaling, downsizing, and relocalizing of all our activities, a radical reorganization of the way we live in the most fundamental particulars."

Slide: The Transition Initiative

Visit the U.K. site or the U.S. site.

Slide: The UnCrash Course

The UnCrash Course is here and the complete course listing is here.