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Page added on April 26, 2012

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Peak Dow, Peak GDP and Peak Oil

Peak Dow, Peak GDP and Peak Oil thumbnail

Peak Oil and Peak Credit do not exist in a vacuum; they’re why we have Peak GDP, Peak Dow and peak Income.

You don’t get Peak Oil and cheap abundance in everything else: you get Peak X, Y and Z, for example Peak Oil, Peak Dow and Peak GDP. Peaks come in causal series, and yesterday I highlighted one such series: Peak Housing, Peak Fraud, Peak Suburbia and Peak Property Taxes.

Would we really be surprised if Peak Oil was associated with Peak GDP and Peak Dow Jones stock market average? Let’s start with a chart of global oil production and the Dow Jones Industrial Average (DJIA), courtesy of Chartist Friend from Pittsburgh.

This chart suggests the Dow may track oil production on the downside, just as it tracked it on the upside.

We get a slightly different but related view if we look at the price of gasoline and gross domestic product, a broad measure of economic activity. Here we see that high prices of gasoline are correlated with low economic activity/stagnant GDP:

While GDP is somewhat abstract, disposable household income is what’s in our checking account. Once again we find a high cost of gasoline is correlated with stagnant income:

Common sense suggests that if employment is rising, the stock market should follow as more jobs means more wages, sales and profits. We see this correlation in the overlay of the S&P 500 (SPX) and employment until the latest recession and stock market Bull run-up: this is clearly a jobless “recovery” yet the stock market has more than doubled. Is this decoupling of employment from the stock market “the new normal” or an aberration that’s about to revert to historical correlation? To do that, the market would need to fall in half or the economy would need to add 10+ million jobs in short order.

If we combine Peak Oil with Peak Credit, we get a household sector with stagnant disposable income burdened by servicing monumental debt loads. Here is a chart of household liabilities and wages/salaries, unadjusted for inflation. Household debt has completely outstripped income.

These charts do not paint a picture of robust recovery, they sketch a grim picture of stagnant household incomes and rising costs for fuel and debt service.

Charles Hugh Smith, Of Two Minds



8 Comments on "Peak Dow, Peak GDP and Peak Oil"

  1. SOS on Thu, 26th Apr 2012 10:59 pm 

    Change the political leadership in this country that wants to crucify oil, gas and coal and you would see a dramatic change for the better in energy supplies, prices and federal revenues related to the production of these abudant natural resources. Peak oil is a political tool not a physical contraint.

  2. Rick on Thu, 26th Apr 2012 11:37 pm 

    SOS, you are a troll. STFU!

  3. MrEnergyCzar on Thu, 26th Apr 2012 11:55 pm 

    Politicians don’t control oil geology…

    We live in a finite planet..

    MrEnergyCzar

  4. BillT on Fri, 27th Apr 2012 12:51 am 

    Blame…the game losers play. And in this case, the losers are the American 99%, or maybe the Western 99%. We have lived high and partied on cheap oil for so long we forgot what reality looks like. But, I think we are soon to be reminded.

    has become a religion in the Us. Facts no longer make a difference, just feelings and beliefs. The fact is that we have reached and passed the maximum rate that oil can be recovered from the earth. No amount of ‘investment’ or wishing will change that. Even with the new ‘finds’ and ‘methods’ we are still slipping down the far side of the graph. Accept that and adjust your living to accommodate having fewer ‘things’ in your life. You have no choice … blame will not change anything.

  5. BillT on Fri, 27th Apr 2012 12:53 am 

    Government has become a religion…

  6. Peak Oil Survival on Fri, 27th Apr 2012 2:16 am 

    No idea how people can point to politics as a solution for declining EROEI.

  7. Kenz300 on Fri, 27th Apr 2012 2:37 am 

    Too many people and too few resources… and the world population just keeps growing. China and India are the driving force in oil prices using more oil every day. The world economy will change due to high oil prices. Shipping fruit and vegetables around the world may not make sense in a world of high energy prices. We may start producing goods closer to their end use. Sustainability will become a word that more people become familiar with.

  8. MrBill on Fri, 27th Apr 2012 7:37 pm 

    SOS, we had change in political leadership and Bush/Cheney(halibuton) got us $140 oil. I suppose you beleive Newt’s “elect me and you’ll have $2.50 gasoline”.