Economic slowdown

NOTE There is more below about the global economic slowdown and the credit crunch. But for the time being, perhaps this cartoon says it all:-

 

Global economic slowdown and the end of the era of cheap oil.

Food and fuel prices rise, airlines go bust, vast banks collapse.

This is not a blip, as some would have you believe.

next 3 paragraphs were added October 16th

And note first that the current dip in oil prices is purely temporary, and if we come out of the recession, the price of oil, and therefore of everything would immediately rocket, thus putting us back into recession. There is no way out except a completely new policy framework.

From “The Oil Drum” website:  “It is not a coincidence that just as we are hitting peak oil, world monetary systems seem to be edging toward collapse. Monetary systems are debt based, and depend on growth to continue. Resources are finite, and we are reaching limitations on them. Many of us have predicted that monetary systems may collapse, either as we approach peak oil, or shortly after peak oil. I have talked about the connection between peak oil and monetary system collapse in a number of posts.” See here for more.

And see here for a step by step guide to how te peak oil crisis caused the credit crunch, see the first 4 paragraphs.  

 

First, Peak Oil

– that tipping point after which reservoirs go into decline, setting in motion both reduced production and progressively higher costs related to extracting the remaining oil. The summary chart looks like this. For the full 100 page report which looks at oil depletion region by region see here.

The consensus among oil experts is that the tipping point for global peak oil is either here or very close. For a racy, convincing and scary account, including interviews with energy industry insiders, from top scriptwriter Simon Beaufoy of Full Monty fame, see here.

Oil production is in decline in 33 of the world’s 48 largest oil-producing countries says Robert Hirsch, top analyst and author of the Hirsch Report written in 2005 for the US government. For the summary version, see here. He also advises that based on past experience with oil-fields that have already peaked like the North Sea, we will not get warning of the global peak and the decline will likely be rapid. We need to act in advance of the problem occurring!

So the price of oil rises and will continue to rise, and with it the price of food and everything else as we have seen in Jersey. We will have to cut our use of all fossil fuels massively and protect the less well-off from hardship at the same time.

(added October 31st) For the very latest proof that peak oil has arrived and that we are now in an era when there will be less and less oil to go round, and so the price will just keep on rising as it gets ever more scarce, see here

Second, the slowdown.

Take air travel as an example affecting Jersey. Rising fuel costs force the airlines to increase their prices. First some passengers stop flying. This reduces the viability of the airline. Either it raises prices still more, thus losing more passengers or it absorbs the losses. In addition the general slowdown caused by more expensive oil reduces demand for flying. Either way the airline eventually goes bust. Many airports in the US now have no flights (see here), many airlines world-wide are scaling back. The aeroplane manufacturers will suffer next – who would buy planes in such a climate? Then the firms supplying making the parts for the planes. And so it goes.

This spiral will repeat in other industries. It adds to the already unstable world financial markets.

Third the global financial tailspin

Keynes predicted disaster and as usual he was right. Unrestricted capital flows, poor regulation, sharp practices driven by greed, mountains of unsustainable debt, vehicles so complex that virtually no-one understands what is going on: the whole pack of cards has come crashing down. And the chances of recovery in the normal economic sense are made very much smaller by peak oil, which is enough to bring on world recession on its own.

The countries worst affected by the turmoil are the ones with the highest exposure to global finance: the US and the UK. So Jersey is in the firing line. The omens are not good. What we should be doing is to

  • reduce our exposure to risk and to moral hazard. This will require some honest soul-searching. Difficult when the standard reaction of those who represent us is to cry: it’s all right!! And to paint anyone who questions the moral basis of some of the finance Industry’s practices as “enemies of the island”. We will need greater maturity than that.
  • play an active part in rebuilding a global financial system which is honest and transparent. I want us in Jersey to be able to hold our heads up high and say: we are part of the solution here, and not part of the problem. That way lies greater security and greater satisfaction than putting our heads in the sand.

what is to be done

To face peak oil, as for global warming and the threat of catastrophic climate change we need to drastically reduce our dependence on oil, learn how to get more quality of life out of each barrel of oil (and other resources too), and diversify our entire economy in the direction of self-reliance and community. And we need to take a hard look at our main export industry Finance as set out above.

__________________________________

For a full step by step summary article on Peak Oil, including the political and media aspects (why have you not heard about it?) with extensive well-informed discussion see here. For pdf of the article, but without the discussion see here.

For a basic explanation of the way banks lend and why we are in this mess, see here. I got that “ah, now I understand” feeling from this article.

For more detail and how truly scary the behaviour of the financial “wizards” really is, see here..

Responses

  1. […] Economic slowdown […]

  2. I still think more than ever that a land bridge to France rather than a sunken road is the way to go. It will reduce dependence on all that expensive oil-based freight, and could even be used – if it came to that – for horse and cart. Why get food from the UK when we could get it cheaper via a landlink to Normandy? Plus, we get wave powered turbines along the way, good article on New Scientist on options there. The nautical bods I’ve spoken to think it is feasible, the path suggested is shallow, and no big ships pass that way.


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