We cannot drill our way out of this oil crisis. Since 2000, oil companies working in the U.S. have doubled the number of wells drilled per year.
Although increased drilling has added new oil to the nation's supply, it has not done so fast enough to offset the terminal decline of existing fields.
We are going to have to import more of our oil. Period.
Posted: Wed Dec 29, 2004 12:31 am Post subject: Our Money System and Oil Depletion; Are they Compatible?
"Houston, we have a problem." The world's present industrial civilization is saddled with a dilemma: how can a debt-based monetary system based upon infinite growth in a finite world deal with resource depletion? Quote me and answer that question with your reply.
On another thread, nero wrote: "The belief that the current monetary system is incompatible with a declining energy resource is not an essential component of the peak oil thesis." It's not? I care to differ. It's part and parcel. The steady state economy into which we are being inexorably forced by oil and other fossil fuel depletion means the end of the current money system. The following is a quote from a summary of a seminar taught at MIT by M. King Hubbert in 1981:
Quote:
"The world's present industrial civilization is handicapped by the coexistence of two universal, overlapping, and incompatible intellectual systems: the accumulated knowledge of the last four centuries of the properties and interrelationships of matter and energy; and the associated monetary culture which has evolved from folkways of prehistoric origin. The first of these two systems has been responsible for the spectacular rise, principally during the last two centuries, of the present industrial system and is essential for its continuance. The second, an inheritance from the prescientific past, operates by rules of its own having little in common with those of the matter-energy system. Nevertheless, the monetary system, by means of a loose coupling, exercises a general control over the matter-energy system upon which it is superimposed. Despite their inherent incompatibilities, these two systems during the last two centuries have had one fundamental characteristic in common, namely exponential growth, which has made a reasonably stable coexistence possible. But, for various reasons, it is impossible for the matter-energy system to sustain exponential growth for more than a few tens of doublings, and this phase is by now almost over. The monetary system has no such constraints, and, according to one of its most fundamental rules, it must continue to grow by compound interest. "
Richard Heinberg, in The Party's Over, wrote: "Hubbert thus believed that society, if it is to avoid chaos during the energy decline, must give up its antiquated, debt-and-interest-based monetary system and adopt a system of accounts based on matter-energy--an inherently ecological system that would acknowledge the finite nature of essential resources."
Our system of fractional reserve banking suffers from an inherent instability that increases over time; because at the base, fractional reserve banking is a kind of Ponzi or pyramid scheme. As long as there is economic growth the pyramid stands, but if not, it collapses like a house of cards. Under our current economic system, Hubbert wrote that the maintenance of a constant price level in a non-growing industrial system implies either an interest rate of zero or continuous inflation. However you spin it, there is no price component for resource depletion. What if the supply of oil cannot increase forever, but the demand for more oil continues to grow? The conclusion is simple: The house of cards comes down. Who is going to loan money at zero interest?
Moderator's note:
This is a long thread. For those who do not wish to wade through the sediments to glean the salient facts, here is a Cliff notes guide of my main posts in the debate:
What will happen as a result of incompatiblity...page 7
Corroboration from credible soucres of my hypothesis...pages 8,9
On barter as an alternative to money...page 14
History of money, monetary base, M1 M2, M3, ...page 18
Dual money system gold/fiat and the Great Depression...page 20
A return to sanity begins with new debaters on...page 25 _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Last edited by MonteQuest on Fri Apr 22, 2005 9:10 pm; edited 6 times in total
Joined: Aug 14, 2004 Posts: 2058 Location: San Diego, Ca.
Posted: Wed Dec 29, 2004 12:53 am Post subject:
Another good topic. IMHO' our current system must fail when the energy wanes.
I would like to discuss is how will the economic crisis manifest itself. I keep reading about peak oil causing massive inflation. Then I read it will cause deflation. I have read the dollar will hyper inflate and become worthless in a short period of time. Then I have read the economy will remain intact but our standard of living will go down gradually.
Which is it? It is all so frustrating to me. How come the DJI broke out of its slump and is going up despite high oil prices and dollar devaluation? I don't mean to take over this thread. I think all of my questions are directly related to it. _________________ "Peak oil isn't more than an interesting industry factoid and doesn't have anything to do with the hysterics speculated on ad nauseum around here!" ReserveGrowthRulz
Joined: Nov 21, 2004 Posts: 579 Location: ~170ft/lbs@0rpm (on my bike)
Posted: Wed Dec 29, 2004 1:13 am Post subject:
From what I can see the overall results will be pretty straightforward, once the peak sets in, there will be worldwide economic recession, this will eventually lead to civil unrest and once that occurs various governments will declare martial law, or some equivalent, and toss the economic system out the window in favor of totalitarianism.
Joined: Oct 12, 2004 Posts: 1650 Location: Davis, California
Posted: Wed Dec 29, 2004 1:15 am Post subject:
The problem is that economics isn't a science; you can't make predictions. Most of economics is fancy number crunching and post-dictions. I'd wager to say that almost all economics don't know what will really happen when oil supplies are dwindling. _________________ Joseph Stalin "It is enough that the people know there was an election. The people who cast the votes decide nothing. The people who count the votes decide everything. "
Posted: Wed Dec 29, 2004 2:13 am Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
MonteQuest wrote:
Who is going to loan money at zero interest?
The Japanese government. They've been loaning money at zero interest for years. (Yet, strangely, they are a perfectly normal, functioning part of the current economic system.)
Many countries operate smoothly for long periods with zero real interest rates.
Some economists, including Milton Friedman, have actually supported zero interest rates. I wouldn't expect Milton Friedman to be advocating anything that might destroy the monetary system.
Other economists have proposed a tax on cash and deposits, which amounts to negative interest. This is suggested as a remedy for curing a sick a economy, not for destroying one which is functioning.
Joined: Sep 29, 2004 Posts: 2132 Location: Pennsylvania, USA
Posted: Wed Dec 29, 2004 11:06 am Post subject:
I've come to believe that oil and money are equivalent in our modern world just as gold and money were equivalent in the old world. The US dollar is literally supported by oil. As oil becomes more expensive, the money supply (dollars) will need to be reduced in tandem or the currency will face severe depreciation. I think that is what we are seeing now. If I'm right, then perhaps Peak Oil has already begun.
Hydrocarbon availability literally determines production capacity. With limited hydrocarbons, production is reduced, prices skyrocket. What we've done for the past 100 years is depreciate commodities prices at an ever increasing rate which directly translates into economic growth. As commodity prices decrease, the money supply is increased in proportion, (lately out of proportion) thus maintaining the commodity's price and allowing the generated wealth to be captured (taxed?). Scarce hydrocarbons stop and reverse that process. Money becomes worth less and less.
How will we reduce the money supply? Good question. Perhaps sometime in the near future every American, as a patriotic duty, will offer burnt offerings in the form of dollars from their bank accounts.
A lot of people talk about pay cuts for Americans and increases in taxes. I think it's worse than that. Dollar holders might have to eat their dollars as oil becomes more and more scarce. The effects will ripple throughout the world.
Perhaps we could start printing dollars on something eatable like Lettice?
Joined: May 22, 2004 Posts: 1396 Location: Ottawa, Ontario
Posted: Wed Dec 29, 2004 11:43 am Post subject:
Quote:
Perhaps Nero defines the ‘peak oil thesis’ something similar to: there is only so much recoverable oil available on the planet and at some point we will have retrieved half of it.
I was defining "Peak Oil Thesis" pretty broadly as: Peak oil production will occur long before the final drop of oil is produced and that the decline in production of our current primary energy source will put enormous stresses on our economies and societies.
I believe that problems will occur irrespective of what sort of monetary system is used. There will be enormous stresses even if the monetary system doesn't come crashing down and people continue to lend money out to people.
I tend to agree with pilferage:
Quote:
From what I can see the overall results will be pretty straightforward, once the peak sets in, there will be worldwide economic recession, this will eventually lead to civil unrest and once that occurs various governments will declare martial law, or some equivalent, and toss the economic system out the window in favor of totalitarianism.
On the subject of Money systems:
John Denver correctly pointed out that we have many examples of people lending money out at 0% interest. But more importantly we have had depressions and recessions in various parts of the world in the past and people continued to save and people continued to borrow. I'm not saying that monetary systems don't crash, sometimes they do, I just disagree with the analysis that says that it will inevitably fall apart when we bump up against the limits to growth.
Fiat money and money backed by gold and or silver are not fundamentally different. Money was lent and borrowed at real positive interest rates for many centuries before Fiat money came into existence. In the middle ages there wasn't even the conception of growth and yet people continued to borrow and lend money. Our current money system was a vast improvement over the monetary system used in previous centuries; it allowed the money supply to grow as the economy grew, and conversely it also provides a mechanism to decrease the money supply as the economy shrinks. Metal based money didn't have this facility and prior to fiat money caused enormous problems for some economies. (For example early 19th century Ontario)
MQ and I have argued over whether or not our current monetary system is a ponzi scheme in a previous thread. I have come to the conclusion that we probably should agree to disagree on the subject.
I do find it quite interesting that Hubbert did believe that the monetary system was fundamentally incompatible with resource depletion. (Thanks MQ for pointing that out) I don't believe Hubbert was an authority on monetary systems so I'll evaluate his views as I would anyone elses.
There is, by the way, a very good argument to be made that the Hubbert curve is fundamentally incompatible with a collapse of the monetary system. If the economy collapses that relatively gentle bell curve goes into freefall because the capital required to invest in production facilities is unavailable. In that case the "optimists" would indeed be correct that maximum production occurs shortly before the last drop of oil is produced.
Joined: May 22, 2004 Posts: 1396 Location: Ottawa, Ontario
Posted: Wed Dec 29, 2004 11:50 am Post subject:
KingCoal wrote:
Perhaps we could start printing dollars on something eatable like Lettice?
Hey through the magic of the central bank, all they've got to do is sell some government bonds and there you go a decrease in the money supply. A much more hygenic way than going around throwing your gold down the well so that the marauding pilllagers didn't get it.
Posted: Wed Dec 29, 2004 6:49 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
JohnDenver wrote:
MonteQuest wrote:
Who is going to loan money at zero interest?
The Japanese government. They've been loaning money at zero interest for years. (Yet, strangely, they are a perfectly normal, functioning part of the current economic system.)
Many countries operate smoothly for long periods with zero real interest rates.
The truth is that zero percent financing is nothing more than a brilliant marketing tool that is dishonest and borders on qualifying as a credit scam. It is very similar to the old "bait and switch" tactics used by sales people for decades. They lure you in to the show room with the offer of zero percent, tell you you don't qualify, and try to sell you merchandise anyway. Only about 5% of all car buyers qualify for zero percent financing and you have to pay off the loan in typically 24 to 36 months, thus, higher monthly payments that few can afford. And you lose the cash rebate if you take the special financing, which is usually around $4000 to $5000 dollars. Many customers lured by zero-percent financing get so distracted by the offer that they forget to negotiate the price of the car. This is not to say that for some people on some deals, zero percent financing is a not a good deal. Trust me, when the bottom line is tabulated, people that offer zero percent financing make up the difference in the car price or somewhere else. You can’t get something for nothing.
As to Japan, the overnight interbank rate is pegged at zero percent, leading to the term "zero interest rate policy." Deposit rates for savings accounts at commercial banks are now in tenth's of one percent, and the prime lending rate to corporate borrowers is 1.4 percent, hardly zero, though. No industrial nation has had nominal interest rates this low since the 1930s. But there is no free lunch. As near zero-interest loans are funded by the Japanese government, they end up holding a commensurately smaller portfolio of securities, and consequently would have a smaller volume of earnings to turn over to their treasury. It’s called a government subsidy. These low interest rates are the result of efforts to stimulate the economy to overcome low growth and deflation, mainly, as well as, rising unemployment, non-performing loans, high government deficits and debt, and exhausted conventional monetary policy…just like we have here in the US of A. Since nominal interest rates cannot be forced much lower, conventional monetary policy has reached its limit. This has led to a consideration of unconventional monetary policy, both here and abroad. We are watching it unfold as I write this. Using monetary crisis, and bait & switch tactics of zero percent financing to support our defunk money system is desperation and denial at its best. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
I would like to discuss is how will the economic crisis manifest itself. I keep reading about peak oil causing massive inflation. Then I read it will cause deflation. I have read the dollar will hyper inflate and become worthless in a short period of time. Then I have read the economy will remain intact but our standard of living will go down gradually.
Which is it? It is all so frustrating to me. How come the DJI broke out of its slump and is going up despite high oil prices and dollar devaluation? I don't mean to take over this thread. I think all of my questions are directly related to it.
Jato,
We may see all of these things. Wal-Mart deflating prices to keep up sales. Real estate bubble collasping. Inflation due to rising commodity prices, especially oil. Hyperinflation if people see prices rising quickly and opt to buy now and beat the inflated prices to come. I see a return of stagflation; no growth and rising prices. The standard of living is going down, peak oil or not.
As to the market, consumer confidence hasn't been this high since midsummer, helped by the quick retreat of oil prices from October's peaks. End of election uncertainty. That, and we are in the midst of a liquidity bull market for corporate buyers-- which is when more cash chases fewer shares. Individuals are chasing the stock market rally and pumping year-end bonus money and retirement plan contributions into equities. Bottom line, year-end inertia. IMHO. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Sure, in a finite world infinite growth is not sustainable. However, in order to support an ever-increasing population, one should recognize that there must be economic growth. The core problem isn’t the economic system. It’s population growth.
The question is what happens when you can't grow anymore due to resource depletion? And of course the core problem is population growth, but that is not the topic of this thread. How can our monetary system deal with the core problems if it is predicated upon infinite growth or it collapses? _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
I'm not saying that monetary systems don't crash, sometimes they do, I just disagree with the analysis that says that it will inevitably fall apart when we bump up against the limits to growth.
Then back your position with analysis and facts. Tear this apart with your reasoning:
Our monetary system is based upon debt.
Debt-based Money Explained http://peakoil.com/fortopic1362.html+money+explained
Every dollar in circulation, save the coins in your pocket, is money borrowed at interest from somewhere. Money is created when someone borrows it, no other way. If everyone tried to pay off all their debts, the money would run out before it was completed. Why? Because no new money had been created to pay the interest on the money already lent. In order to fuel this pyramid, the economy has to grow, jobs have to be created and infrastructure has to be built. Money for capital investment has to be borrowed to fund this. No GDP growth has ever occurred without an increase in energy use, primarily electricity. If you reach a point where you cannot consistently increase the energy consumed, you cannot grow the economy and create the money to pay off debts. The whole house of cards comes down. Our only source of abundant energy in the near future is conservation and efficiency. When that is gone, any more comes off the top of the remaining standard of living. There will be new mouths to feed, and people to employ. Our share of the pie will get smaller and smaller. In the past, we grew our way out of these holes, we won't be able to do that this time around. Growth won't be able to occur to meet the demands of our debt-based monetary system. Maybe it will, but what if it doesn't? _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Last edited by MonteQuest on Wed Dec 29, 2004 8:40 pm; edited 1 time in total
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