[davec67]

I have frequently seen on this board messages about how the current economic meltdown AKA the econolypse was caused by oil price - either too high or too low or how some PO visionary predicted this years ago.

From following this issue closely, other than the most generic link of how our entire economy is fuled by oil, I can see no compelling evidence that shows the oil caused this. It seems almost entirely caused by nothing more than the good old renewable resource of greed and stupidity.

The bubble here has been growing for years and no amount of increase in oil price this year or last would cause someone to take a mortgage that they cannot afford 3 or more years ago. Nor did oil cause the brains (sarcasm) at the investment houses to come up with structured derivatives. Nor cause consumers to spend more than they own (nor for that matter to stop spending recently). This problem is purely man made, the price or availability of oil had nothing to do with the timing, size, scope, or impact of this problem.

If anything, especially if peak oil is imminent or already passed, the econolypse may in fact slow down societies destruction and give us a better chance of a slow collapse rather than a complete meltdown.

comments?

[mos6507]

I've already driven this point home so many times I'm burnt out over it. I'm sure everyone will come out of the woodwork to try to show that peak oil caused the credit crisis. There is just no convincing them. I think TS would HTF pretty soon if the credit crisis hadn't hit first, but we weren't quite there yet. Nevertheless, because of the coincidental timing, and because people need something to maintain their faith in peak oil, they need to have peak oil take "credit" for the credit crisis. I give up.

[Carlhole]

Yeah, I've been posting about this too.

...as if the extreme leveraging of financial markets during the 1920's and which led to the Crash of '29 followed by the Great Depression did not "rhyme", historically-speaking, with today's long period of leveraging and deregulation in financial markets.

In the years following WWII and through the 20's, each new spectacular oil find seemed to be orders of magnitude greater than the last one. A long series of huge oil discoveries led to the biggest finds the world has ever seen in the 30's. None of this cornucopia of energy had any effect on classic market bubble economics caused by a long period of too-easy money.

It appears very likely that the price of crude oil (during normal economic times) has risen due to the stunning emergence and development of China and India. It's also true that investment in energy exploration and development had lagged during the 90's when oil was dirt cheap. But ordinary supply/demand determinants would probably have pushed the price up to no more than about $80 in 2008 even with Chindia's growth added to the demand side.

All the rest of that price rise up to $147 during 2008 was pure bubble. It was caused by money fleeing investments with exposure to mortgage-backed securities, dollar-denominated assets, real-estate, banking and all that -- into commodity markets and crude oil. Commodities are seen as a safe haven against a depreciating currency.

You know, if it were dead-certain that Peak Oil was responsible for our current Econopalypse, posters like DantesPeak would still be on a "told-you-so" tear all over PeakOil.com!

[nobodypanic]

yeah, yeah sure... nearly $5 a gallon gas had, nothing, nothing at all, to do w/people not being able to keep up w/those mortgages.

look, peak oil played its role, however minor.

[Drake]

My personal view on this is, that those two topics are not necessarily causally linked, but linked they are. Peak Oil didn't cause the credit expansion, but it's quite likely, that the high energy prices burst the bubble a couple of years before it would have happened anyway. And rising prices up until say end of last year were definatly caused by the industries incapability to expand production in the necessary amounts despite a very good price incentive.
In the end there was probably quite an amount of speculation in those 147$, but even an oil price of 60-80 $ took quite a toll from the oecd economies.
On the other hand, the economic crisis makes it highly likely that we now have seen peak oil, because necessary future investments get cut. It would probably have been possible to expand production a bit more if business as usual had prevailed a little longer.

[TheDude]

I'm reminded of dialogue from an old Seinfeld:

ELAINE: You know, George, just saying you find a man attractive doesn't make you a homosexual.

GEORGE: It doesn't help.

[centralstump]

It seems almost entirely caused by nothing more than the good old renewable resource of greed and stupidity.

I agree. Global peak oil had nothing to do with this collapse. But I submit that the peak and subsequent decline in American oil output had everything to do with it.

Up until the eighties, we could make money "the old fashioned way." We could build things, sell things, and grow things. Peak American oil (among other important resources) meant we could now only borrow things. (and the rest of the world could lend us things)

This may not be Peak Oil, but it is kind of its little brother.

[keehah]

Perhaps dave67 and mos6507 you could actually offer your non-peak oil root cause reason(s) for the 'credit crisis.' This lets us each decide if it is better theory or not.

Neither of you has offered a reason in this thread.
So if not rooted in peak oil plateau effects what caused it?

Personally I say fiat money and Wall Street corruption (Pyramid scheme overreach) caused it. Arrival and larger awareness of oil production plateau (and other resource constraints) means the economy will not cycle back to new heights.

Peak Oil could still be the root cause as one could make the case arrival and/or awareness of peak or plateau prevented some new bubble being formed to replace real-estate and continue Wall Street's games.

[bodigami]

economy + apocalypse = econolypse
...no econolpyse

[smallpoxgirl]

IMHO, peak oil is tied into the econolypse in two very important ways:

1. We have an economy based to a very large extent on burning fossil fuels and particularly oil. In the 1970's, the US ran head long into peak oil. In the early 1980's we made a very important dialectic change. We stopped trying to live within our means economically. We stopped to live within the limits of our domestic natural resources. We transitioned to a fundamentally consumption based economy. Borrowing money we don't have to buy things we don't make that are powered by fuels we don't have. The "housing bubble" is just the latest chapter in that book. It is a book about choosing to party and live the high life instead of living within your means.

2. The consumer economy ponzi scheme really started to collapse when we could no longer afford both the escalating costs of basic materials and the payments on our debt. In other words, the consumer economy ponzi scheme allowed us to forestall for a while, the effects of our deteriorating supply of natural resources by borrowing money and buying them from other countries. It collapsed when the debt payments and high costs of natural resources exceeded our ability to continue borrowing.

[Armageddon]

There is a direct correlation between economic growth and energy growth. To can't expand your economy without expanding your energy supply. And guess what ? We have been at a plateau since 2006. It is not a coincidence we are collapsing when we have hit the plateau. I have always said a financial collapse will mask PO from mainstream and most will never know PO was the culprit.

[SpringCreekFarm]

I say the econolypse was caused by many factors and one of them was the high price of energy. If you can't see that as even a remote possibility then you need to change your reading glasses.

What was the one thing modern civilization requires that increased the most over the past few years? Does energy even make the top 5 on your list?

So if you get a mortgage that you can afford ( lets say they can for the sake of argument in this case as we know there was a portion of society, that had no business getting a mortgage at all ) when prices of energy were lower, you can make the payments fine or struggle a little. Then the price of energy climbed and made other essentials of modern life go up as well. This was the show stopper which cause this party to end.

Food here went higher because agriculture cost more because fertilizer cost more because feedstock for fertilizer ( based on fossil fuel ) and farm fuel went higher. So at some point the family budget starts to strain. People can't make their payments and default on their loans.

Now I'm not suggesting that this was the only reason but I think, and will continue to think that high energy prices did drive some of it if not a big part of this bad economic downturn.

Were the high energy prices caused by peak oil? I don't know, but the speculators weren't bidding up oil because they expected a glut of oil on the market in the near future did they?

People tuned in, see a future with less energy and their actions drive prices higher which can trip up people not tuned in to either energy issues or their home budget.

[Armageddon]

The price of oil had nothing to do with this. It was going to collapse regardless. It may have sped it up by a year, but it was still inevitable. When the US went from an oil exporter, to an oil importer, the game changed. From that point, they went from the world's wealthiest country, to the world's foremost debtor nation. And once they became this huge debtor nation, things snowballed. The world still viewed this incredibly industrialized nation as the leader in the free world, and kept investing their wealth into a declining and collapsing nation to their chagrin. The US will go down, but while doing so, they will bring down everybody with them due to a depleting energy source.

[Revi]

The peak in oil meant the peak in growth. We needed 3% growth just to keep the system working. We needed new malls, new cars, new houses or the whole thing collapses.

I would say that it was the causal factor, like the Roman silver mines flooding. The thing that kept it all growing was oil. Once we weren't getting more of it every year growth stopped. Our whole economic house of cards was knocked over by it.

[yesplease]

I agree. Global peak oil had nothing to do with this collapse. But I submit that the peak and subsequent decline in American oil output had everything to do with it.

Up until the eighties, we could make money "the old fashioned way." We could build things, sell things, and grow things. Peak American oil (among other important resources) meant we could now only borrow things. (and the rest of the world could lend us things)

This may not be Peak Oil, but it is kind of its little brother.

As the world's largest manufacturer we can still make, build, grow, and sell. The problem is that for the past few decades we've been buying more than we make, build, grow, and sell, and that debt has to be paid sooner or later. It isn't like when oil peaked we had to borrow to continue to manufacture stuff, we simply chose to borrow more than we earned, and now we're paying for it.

[JohnDenver]

There is a direct correlation between economic growth and energy growth. To can't expand your economy without expanding your energy supply. And guess what ? We have been at a plateau since 2006.

No we haven't. These are the figures for world primary energy consumption (in Mtoe) from the BP Stat. Rev. 2008:

1999: 9052.8
2000: 9293.3
2001: 9341.7
2002: 9524.2
2003: 9828.9
2004: 10289.4
2005: 10557.6
2006: 10843.0
2007: 11099.3

Energy consumption in 2007 was 2.4% higher than 2006. Note also that the above figures don't include the most rapidly growing sources -- wind, solar, geothermal.
The plateau since 2004 in oil has had little effect on growth in total energy.

[yesplease]

There is a direct correlation between economic growth and energy growth.

Yup.

To can't expand your economy without expanding your energy supply.

Nope.

Energy consumption tends to follow economic growth since for the most part it's a luxury item. Clearly we need a certain amount of oil to run the economy in the literal sense, moving people and stuff around as well as making plastics and the like, but oil consumption tends to fluctuate more than GDP because of it's use as a luxury. During a recession we tend to cut back on use, even at a constant price, and during a boom, we tend not to.

[yesplease]

I say the econolypse was caused by many factors and one of them was the high price of energy.

Is that what you kids call recessions these days?

[JohnDenver]

I say the econolypse was caused by many factors and one of them was the high price of energy.

You're not following the chain of causes deep enough. Why was the price of energy high? Due to an orgy of rapid growth caused by loose credit, easy money, massive leverage and other financial factors. The energy was being used not for sustainable growth, but rather to build massive overcapacity -- too many factories, homes, cars, mines etc. High energy prices were just the final *symptom* of an out-of-control, overheated credit bubble.

[Armageddon]

There is a direct correlation between economic growth and energy growth.

Yup.

To can't expand your economy without expanding your energy supply.

Nope.

Energy consumption tends to follow economic growth since for the most part it's a luxury item. Clearly we need a certain amount of oil to run the economy in the literal sense, moving people and stuff around as well as making plastics and the like, but oil consumption tends to fluctuate more than GDP because of it's use as a luxury. During a recession we tend to cut back on use, even at a constant price, and during a boom, we tend not to.

If you have a fiat monetary system, you have to have continued growth to service the debt. To have continued growth , you need more energy , ie: more homes, malls, stores etc. This is why you can't grow your economy without growing your energy supply. It's quite simple.