Saturday, November 29, 2008

Where We Are, Where We Were and Where I Think We're Headed

It's been a rather wild year, and there's no doubt that we who have lived through it have become partakers of the ancient Chinese curse regarding “interesting times.” It's only natural for those who see something of the significance of those times to try to figure out where things are headed.

At the end of last year, oil prices were taking off like a passenger jet from an airstrip. Certain sectors of the global economy were faltering, but there was not the wholesale failure and wreckage seen in recent months. Iraq seemed to be “stablizing,” the “surge” seemed to be working. Many who had recently heard of Peak Oil (by recent, I mean those with less than a year's awareness of this subject) were like me, excitedly telling what we knew to anyone who would listen, expecting major, widespread and imminent changes, and frantically trying to prepare.

The first several months of 2008 did not disappoint. We saw widespread mortgage failures, the deaths of several banks, the appearance of massive zones of foreclosed properties, the stripping of partially-built and abandoned housing tracts, and an oil price which briefly rose to nearly $150 a barrel, as well as widespread evidence of accelerating man-made climate change. Some who followed these trends announced that Peak Oil had definitely arrived, that one proof of this would be that the price of oil would continue to rise quickly to astronomical levels (say, $300 a barrel), and that the world would see a rapid increase in geopolitical conflicts as a result.

But then the world witnessed a series of rather confusing events. There was geopolitical conflict to be sure in Georgia's Ossetian region. But the price of oil began to fall, and continued falling even as the United States was hit by two hurricanes which resulted in widespread shortages of gasoline throughout the American Southeast. I thought the fall in price was due to manipulation by corporate interests to prevent Americans from seeing the true condition of our country's energy supply and economy until after the election. Now I am thinking that while that may have been partly true from July to September, there are now much stronger natural causes at work behind the drop in petroleum prices. It seems that the failure of the American economy over the last few months had actually reached a point which resulted in a significant, long-term decrease in the use of oil and refined petroleum products. This is what drove the price of oil sharply down, along with the collapse in economic activities such as manufacturing and shipping due to the credit crisis.

Among the predictions I encountered frequently when I was just beginning to find out about Peak Oil is the thought that once oil prices hit a certain level, the global economy would instantly and catastrophically collapse. We now know that a collapse of sorts has occurred, yet it hasn't been as severe, widespread or sudden as some predicted. I still have a job, and I know many others who still do. But we are not unaffected. My company derives much of its business from providing design engineering services to industrial and petrochemical clients. This summer one of our upcoming projects was put on hold indefinitely, and within the last two weeks several petroleum projects were canceled due to the drop in the price of oil. This has put several of our other offices in a bind. Perhaps I should say that I still have a job for the time being. I feel somewhat like people who recorded video footage of the 2004 Indian Ocean tsunami from the relative safety of the upper stories of hotels or restaurants on higher ground, while watching their fellow humans being swept away. And the collapse is still in its early stages, according to the sources I read and trust.

As I said earlier, it's only natural when facing such uncertain times to wonder what the shape of coming events will be. Some writers analyze the fine nuances of global geopolitical games being played by the major nations of the world. Others analyze the meaning of the various financial moves being made by corporations, banks and stock markets. Yet others analyze the significance and strategy of the various “terrorist” attacks that make up the present asymmetric war against the American empire and Western dominance of the world. Then there are those who don't bother with any of those things, having concluded simply that life as they know it is about to change irreversibly and drastically, and who are simply trying to adjust as best as they can. I identify most with people in this last category, yet I am curious as to how things in the larger world will turn out. And I tend to form opinions and make predictions. Here are a few, for anyone who's interested. But take them with a grain of salt. There are, after all, many highly educated and famous “crashwatchers” writing about these things on the Web nowadays, and they have access to information that I don't possess. Look at me simply as a sort of amateur golfer on a Saturday afternoon who dreams that he's Tiger Woods.

Here then is where I think we are. The global credit crisis is a crisis of currency of sorts. It was caused by the fact that banks and investment houses created certificates of worth out of the interest-bearing debts of hundreds of millions of small, working-class people. When Peak Oil arrived (and I do most definitely believe that it has arrived), and the prices of food and energy began to skyrocket, these poor people were unable to make regular payments on their debts. This caused massive debt defaults, reducing the value of the certificates of worth based on these debts to near zero. Moreover, the poor and working-class people who drove the consumer economy were no longer able to grow their consumption to satisfy the demands of a “growth” economy. The even poorer people who actually made consumer goods in Third-World factories were not able to even begin consuming things beyond food and energy. Thus the growth economy faltered and began to collapse, driving down the prices of finished goods and raw materials such as petroleum products.

Note, however, that the collapse in prices of raw materials and petroleum is not due to finding additional supplies of these, because no new easy-to-get, concentrated supplies have been found. The new supplies of oil that have been discovered have all been deposits that will present extreme technical challenges and require lots of capital, energy and equipment in order to exploit. Remaining deposits of coal and minerals from molybdenum to phosphorus are all becoming more and more diffuse, and require digging and processing ever-greater quantities of ore in order to get a given quantity of refined product. Commodity prices have collapsed due to the collapse of the credit market, which has cut off prospective buyers from the means to buy raw materials. Because of the resulting collapse in price for these materials, and because of the increasing cost of new projects to extract these materials, extractors and miners of these materials are canceling projects right and left.

But this is a dangerous situation. Let's say that the credit crisis works itself out eventually, and buyers and sellers of raw materials and finished goods decide on a new medium of exchange, one which inspires trust and confidence that the units of its currency represent actual value. That confidence may be misplaced, but that's another story. Nevertheless, let's say that there's a restoration of confidence in credit markets which results in another attempt at global economic growth. This growth spurt will very quickly run up against the same scarcity of resources which caused the price of raw materials such as oil, phosphorus and copper to spike earlier this year. The price spike will make finished goods made from these raw materials unaffordable to most of the world's population, and another collapse will result. An ever-quickening cycle of attempts at growth followed by collapses will ensue, and this will be the proof that we have passed Hubbert's Peak for most of the resources on which our global, “official” economy depends. The fact that the collapses cause investors to cancel new mining or energy projects means that the attempts at global economic growth will falter more quickly, because of the decline of existing supplies of oil and minerals. In short, I see an ever-shortening series of cycles of attempted growth and collapse over the next few years, before a final and unavoidable stage of worldwide economic decline sets in.

As for oil supplies, I am no geologist or petroleum expert. But I tend to believe that the Energy Watch Group Oil Report released in 2007 is accurate, and that world oil production has already peaked and is now in irreversible decline. I think that 2009 will be the year in which this becomes undeniably and painfully obvious.

As far as our adaptation as a nation to these things, I have a few things to say that may be hard for some to swallow. I am a “recovering Republican” who quit the GOP in 2006, because I was disgusted by their money-grubbing, closet racism, and role in the present American corporatocracy. Yet in watching the Democrats since then, I have seen many Democratic politicians who are servants of that same corporatocracy. So while I voted for Obama in this last election (the very first time I ever voted Democrat), I am unwilling to become wildly enthusiastic about what he will do in office. My skepticism is especially strong when I see some of the people he has picked to be part of his administration. If he nominates Hillary Clinton to be secretary of state, that would not be a good sign for many Third World residents who are suffering from the invasion of their countries by rich Western multinational corporations. His choice for attorney general is Eric Holder, a man who helped defend Chiquita Brands International against charges that the corporation hired and supplied “death squads” in Colombia to murder those opposed to Chiquita's business practices. And there is the support Mr. Obama has shown for all of the bank bailouts that have taken place this year.

I think there is a real danger that Obama may turn into a mere symbol of “change” rather than being an actual change, and that “change” may be defined as nothing more than saying nice things about wanting to help poor people and having a “diverse” government. In short, I think Mr. Obama may try to take the same path that President Bill Clinton did during his administration – defining being “progressive” in terms of “tolerance” and “diversity” and talking much about supporting the little guy, yet all the while being a servant of our present corporatocracy. The strategy worked quite well for President Clinton for a while, even though Western corporations were ruinously exploiting the rest of the world and were accelerating their outsourcing and deregulation of the American economy under his watch. But Mr. Clinton and most of the mainstream media were caught entirely off guard by the WTO riots and protests in Seattle in 1999.

I think a similar surprise awaits Mr. Obama if he tries to take the same path. There is not much real difference between the Democrats and the Republicans. I think those who are in power in Washington and who are about to come into power have a common goal: to preserve the American empire and Western dominance of the world for as long as possible. Whereas President Bush did so clumsily and artlessly, Mr. Obama may be urged to do so smoothly and suavely as Clinton did. So it wouldn't surprise me to see that there is no immediate rush to bring American troops home from Iraq or Afghanistan. Nor would it surprise me to see our government continuing to aggressively push “free-trade” agreements in as many regions as possible. And while I expect that the Kyoto accords may be signed, I think our “answer” to climate change and energy will be to make a lot of noise about finding a technological fix rather than learning to live more modestly. On the home front, I expect both Democrats and Republicans to justify the need to keep the Patriot Act in force. And I expect that the poor of this country will continue to be required to bear the losses of the rich.

Yet I also expect that there will be a strong backlash if our nation's government continues to serve corporate interests as it has. I don't think that backlash will be seen first in our country, but rather abroad. It will often take the form of violent attempts by Third World residents to free themselves from American corporate domination. It will be called “terrorism” by the American media. And it will be one of the things that leads to the breakdown of the American empire, because of the costs borne by those who try to stop it and the futility of their efforts. I expect the earliest acts of that backlash to occur far sooner in Mr. Obama's administration than they did in Mr. Clinton's administration.

In short, it wouldn't surprise me to see an Obama administration trying desperately to maintain the same global “official” system that the Bush administration served. Yet the system is breaking, and the attempts so far to save it are only hastening its demise. The world is about to get much bigger again.

As far as a timetable, I have my own guesses. But I'm keeping them private. In the meantime, my advice to anyone who is reading is to work on building your own safety nets, your connections to your immediate community, and your repertoire of useful and necessary skills. And enjoy the low commodity prices while you can, because they will probably soon go back up. Today I saw regular unleaded gasoline on sale for $1.79 a gallon...


biffster said...

Thank God the Dems are in!

Ahavah Gayle said...

This is a good piece. I wish more people would take these things seriously.

I would add that the real root cause of all this has been wage deflation that started back in the 80s. Globalization drove down wages and benefits, yet the CEOs did every thing possible to keep people spending money as if nothing was wrong - and they did, not realizing what was happening. Now we have simply reached the point where people have no more disposable income to spend - now they see the trap, but for many if not most there's little they can do except try and get out of debt by whatever means possible - which will take a while and be very, very messy.

I agree that the current price of gas is due to demand destruction, and that has not gone as far as it can go here in the US. Not everyone who can make other arrangements for commuting already has - but the reason demand didn't creep back up when prices went down is because people who did make other arrangements are realizing that they want and need the money they were spending on gas for other things.

Having made the jump to mass transit or biking or carpooling or whatever, they find it's not nearly as bad as they had worried and some of the benefits are much better than they had thought. So we will continue to see gasoline prices fluctuate as this process finds its point of maximum return. At some point, however, the people who have access to alternate transportation will be pretty much exhausted and all that's left will be people stuck out in the 'burbs who have no other choices.

Good luck with your preparations.

TH in SoC said...

Ahavah, thanks for your readership. I also enjoy reading your blog, Shalom Bayit. I am impressed by your perceptive analysis of the financial crisis. I've been thinking this week about how the credit crunch will affect various large-scale municipal expenditures as cities are forced to move to a "pay-as-you-go" business model. Happy blogging!

theotherwaldo said...

I think you worry too much. Planet Earth gets plenty of energy. It's our challenge to harvest what we need. Oil and other petrochemicals are merely one option.

By the way, I don't bicycle commute anymore but I used to. 127th & Burnside to the west end of Broadway Bridge was a good Portland commute.

So was Huntington Park to Long Beach/San Pedro in the Los Angeles area. Love that LA River run!

Most of my bikes were picked up at swap meets or scrapyards and then reconditioned at home. Cannibalization of junkers was the norm, rattle-can and rust decorating schemes prevailed.

Like I said, don't let the small stuff rattle you. This, too, shall pass.

TH in SoC said...

"Waldo," you may want to read some of the official reports coming from government agencies such as those I have listed in my links. But if someone doesn't like worrying about these things, I certainly won't try to force them to worry.