What to do about peak oil

[Atash Hagmahani]

Well, first of all, don't panic. A sense of urgency, yes, but panic implies confusion and lack of focus. Besides, your brain can't maintained such a heightened emotional state for long. You'll give up.

A very few of us are pretty well-situated to hunker down and deal with it. Most of us are not.

The problem has to do with the nature of "catastrophe": discontinuities of state and of the rules that apply for dealing with it.

Let's start by talking about the 1970s. In the 1970s, the USA's petroleum production went into decline. The economy was mired in "stagflation", which caught our central economic planners totally by surprise, since they had assumed that inflation and recession were mutually-exclusive (they are not).

The Cold War was probably about at its height, but all was not as it seemed--something I am still trying to figure out.

Frances Moore Lappe was telling people to eat a less fuel-intensive diet, ostensibly "for world hunger", much as Lord Stern and Peter Singer are today. I don't think that is a coincidence.

Now think really hard, and if you're old enough you might remember that the popular media had a lot of articles about catastrophic climate change, though at the time they were having difficulty deciding whether we ended in fire or ice.

Terrorism was a major headliner in those days, though more in Europe than in the USA. Carlos the Jackal and gang kidnapped 70 members of OPEC including some members of the House of Saud. Now someone help me here: I recall that one of the terrorist gangs associated with the Jackal was Bader-Meinhoff. Somehow, mysteriously, Jaschke Fischer's membership in Bader-Meinhoff was never an issue when he became German foreign minister--during a time frame in which Germany was secretly providing bombing coordinates in Iraq and also cooperating in secret renditions, all the while operating from a political party that was ostensibly based on peace and environmentalism (die Gruener). I think that much of history is the playing out of elaborate scripting and deception.

Many of you probably recall a great deal of publicity and near-hysteria about something called "the Energy Crisis". 10 years later, the publicity evaporated as if nothing had ever happened! What happened? I think what happened was that domestic depletion of petroleum turned out not to be a big deal YET. Furthermore, there had never been any credible "threat" of either OPEC or "the Arabs" "using the threat of oil embargo as a weapon". On the contrary, it was Saudi Arabia that broke the so-called "Arab Oil Embargo", and, furthermore, participated in Dr. Henry Kissinger's "petrodollar recycling" through investment banks in NYC and London.

Many of you probably remember the "Club of Rome", which announced that humanity was doomed by the year 2000 if the countries of the world failed to participate in a globalist centrally-planned economy. Compare to the Kyoto Protocols and the upcoming summit in Copenhagen.

Some people, worried mostly about the potential for thermonuclear war with the Soviet Union, but perhaps also troubled by social and economic turmoil, started something like the "homestead" movement. Carla Emory, the author of The Encyclopedia of Country Living", was one of these.

She ended up living a hard life, while running away from a problem that was not yet quite fully "ripe". Furthermore, the "homesteaders" had no idea that globalization would happen and that it would become very difficult to run a homestead profitably. Most of them ended up commuting absurd distances to cities to find work--in other words became MORE dependent on fuel!

OK, so for a while it seemed as if the world were becoming saner and safer again. Deregulation during the Reagan administration brought down oil prices. Although our domestic production continued its decline, there was still plenty to buy on the international market fairly close to home. The Soviet Union ceased to exist (by secret treaty I suspect), thus ostensibly ending the "Cold War", with the USA remaining "the sole superpower" (I wonder about the concept of a "superpower" totally dependent on foreign production of goods and loans to buy them with...).

I believe that what we are seeing is essentially a re-run of the 1970s, because this time we have hit GLOBAL peak oil. I suspect that this time it is real, because the solution to the problem of the 1970s--simply buying more offshore oil whose supply was never really credibly threatened (aside from whatever machinations may have gone on behind the scenes)--is no longer an option. It is impossible to expand the problem to a bigger frame.

That's enough for now. I will try to continue my thoughts later.

[Mike]

http://www.financialsense.com/fsu/editorials/ash/2007/1109.html

So that is what de Gaulle did.

Starting in 1958, he ordered the Banque de France to increase the rate at which it converted new Dollar reserves into bullion; in 1965 alone, he sent the French navy across the Atlantic to pick up $150-million worth of gold; come 1967 the proportion of French national reserves held in gold had risen from 71.4% to 91.9%. The European average stood at a mere 78.1% at the time.

2/12/1965 http://www.time.com/time/magazine/article/0,9171,840572,00.html
I probably read the linked article.  In any case, I remember the event.
I was almost 13.  I suspected something was up, but had no idea what.

1965 copper sandwiched coins came out.  Another clue, but there was nothing in my experience to compare it to.

1969 the economy seemed to me, vibrant.  A few things seemed kind of expensive.  But I bought very little.

1972 Inflation was obvious.  It was not in anyones' experience.  Nobody had a clue as to what to do.

1978 My assessment of real estate said "Rent!  Don't own!"

1980  Gold was going to the moon.  One couldn't sell real estate on contract because nobody could afford the interest, besides 'inflation' would destroy the principal.  My 'plan B' was to trade.

1982 Economy was the worst I could imagine.  I imagined a future where there would be only declining commerce and wealth.  I didn't expect to ever see another 1969.

********8
What was missing from my understanding was Kissinger's role in bringing oil to America.  I also didn't appreciate domestic Peak Oil or World Peak Oil until about 2000.

[Atash Hagmahani]

Part of the seeming salvation from the economic doomsday mechanisms of the 1970s, widely predicted to result in hyperinflation (for example, Harry Figgy), was...

..."credit" (debt, actually) expansion...
...offshoreing production

The problem with the first "solution" is that you can only do so much "credit" expansion before the debt resolves by a combination of debt repudiation (bankruptcy, bailouts) and inflation, that will eventually go "hyper". That was what the doom-sayers were saying, and they were right in terms of what was public knowledge of the situation. Things were going on behind the scenes that the late Mr. Figgy was unaware of.

Paul Volker is often credited for getting inflation "back under control" through his "ruthless" rate hikes (that made insiders wealthy), but I think what really happened was some smoke-and-mirrors behind the scenes, that created demand for $US to use to pay for oil and other commodities. For one thing, I don't think it is possible to stop a hyperinflation, without severe consequences, by simply raising interest rates: you either contract credit and go into the mother-of-all-depressions, or you hyperinflate all the faster as you try to keep up with the avalanching interest due.

The problem with the 2nd "solution" is that it's essentially a one-way street. Here we have Nouriel Roubini wanting to ship ANOTHER 25% of production offshore! What happens when it becomes essentially too expensive to produce ANYTHING domestically?

Which brings me to my next point:

It is futile to plan for a breakdown of our economic system, without regards as to what the central economic planners are planning to "do" about it.

Those who tried before, got snared in globalization and offshoring, whereby it became practically impossible to make a living as a small farmer. The cost of land (bid up with borrowed money, as Mike has pointed out) was too high compared to the price of the goods that could be produced on said farm and sold to produce income.

This is true in general. It wouldn't matter too much what you were producing. You could have a factory on your rural retreat location, and it would still have difficulty producing enough relative to expenses, including the costs of interest, taxation, and inflation itself. That's why we de-industrialized.

There seems to be a horrible feedback mechanism in place: the harder it is to make a living, the more that some people's (but not others) living is subsidized. This results in more overhead, making it ever harder to compete in a globalized environment where "everybody in the world competes with everybody else".

Much of our overhead consists of social welfare that was supposed to have been designed to LOWER costs of doing business. For example, subsidized daycare (for some but not others!) is supposed to make it possible for women to work outside the home, thereby supposedly increasing productivity. Similarly, a whole host of social welfare is supposed to increase the productivity and decrease the "social costs" of "at risk populations". The general term for these schemes is "social capital".

I can't imagine that any scheme that requires a central planner is efficient.

Note that Nouriel Roubini, whom I suspect is fairly influencial in the scheme of things, wants more make-work on the theory that makework produces something to show for the money spent, whereas "unemployment benefits" don't.

I think that all of this central economic planning is a small part of a much bigger picture, wherein the total net operation of the USA and certain other countries, is part of a grander scheme that involves something like 200,000 paid personnel worldwide and a gigantic shadow $multi-trillion budget. In other words, the people running the country tend to think of the USA and other countries as having some "greater purpose" in the scheme of things, that is unrelated to OUR problem of getting the bread on the table, except as a hindrance and a cost overhead. You know, the "Egypt the prize" people.

So, in a nutshell, here is the problem with just trying to run away to a rural "safe haven":

your cost to buy the land, and pay taxes on it, is high compared to the income you could produce working the land. You will probably end up looking for wages at the nearest truck-stop.

There is a solution, but the central economic planners already thought of that and took steps already in the 1920s to thwart your attempts to do it. They also watch very closely for "interior" economies, such as the FLDS (Fundamentalist Latter-Day Saints) had. They were "taking care of each other" on their compound (the interior economy) while many of the men had jobs in the construction industry that pulled money from the exterior economy into the interior economies.

Interior economies are immune from the "inflation tax". If you and your friends are living fat and happy on your little commune, and you fix your cousin's plumbing "as a courtesy" and he brings you over some smoked salmon "as a gift", then you aren't USING money and therefor don't need to worry as it is being debased. As a result, the IRS considers that "tax evasion". Technically, it's tax-avoidance, but they'll prosecute it as tax-evasion and they will win. The judges are dependent on their downstream collections!

The FLDS were committing the "crime" of accumulating capital. 

It's not really a zero-sum game at any one time, but over a long time it is; so in essence their accumulation of capital game from a net capital loss from the exterior enclosing system--which includes the elites themselves.