First: an apology if this has been covered over here. I've been looking around but can't find anything that immediately matches my question:

This incipient U.S recession has NOT been caused by Peak Oil, yes or no? This recession looks like a real doozie, everybody here knows it's The Big One, but is it THE Big One? The one the U.S will never recover from, a la Post Peak Oil scenario which goes: oil prices rise to $100++, causing massive inflation and eventual economic collapse.

From what I can see (I don't even qualify as an informed observer, I am number dyslexic let alone a musician for whom Economics=Dark Art), this recession is caused by G.W.Bush and his admin's economic policies during his 8 year reign. Not by the fact that the world probably reached peak oil production in 2005.

Housing boom bust, plus credit crunch plus dollar devaluation, whatever ... but not due to $200. oil

So, this means: Euro zone and the rest of the world will suffer some consequences but not necessarily the Global Systemic Collapse some have been predicting; some countries will manage to continue growth/development (mostly 2nd World i.e Malaysia, Vietnam, Singapore,); Third World will sink back to the worst times ever. But how and will the US recover? The recession comes coupled with inflation/stagflation and a lowering of price per barril. Since the US economy can be pretty much wiped of the constant growth equation, I suppose that means Chindia can take up what that market doesn't?

I'm trying to get at whether or not people (Mr. Bill?) reckon the US can or will eventually get through this recession and out the other side, or will it simply be on some sort of undulating sickening up and down again scenario, given how the free market economic model it's been running on for a few centuries has no replacement?

If the U.S drags down the rest of the world (looks unlikely for the Euro Zone), should we be pissing ourselves since this must be the last recession we'll ever know coz there can be no recovery? If the US can get out of this one, will there be another, even more massive economic mess further down the line...?

Or, alternatively, is this the Fish Shitting the ...no, sorry, the Shit Hitting The Proverbial, denoting the start of the Long Dark Night of The U.S.A?

Here is my take on it as a casual student of things:

Cost of borrowing lowered following the tech bust led to housing boom. Creative financing extended the boom to near ridiculous proportions. The boom is "contained" to all developed countries. From Spain to Australia. Mortgage-backed securities are sold as AAA rated items around the globe, helping (in particular) to finance America's addiction to debt (private and public).

Like all booms, prices eventually got so high, no one could afford the houses and the tide shifted and started going out. As the housing market slowed, big banks realized they had some seriously bad debt on hand. This caused the credit crisis. Housing was already tanking on its own. The credit crisis merely exacerbated it.

High oil prices may have helped this process along, but are probably not a direct attribute to the immediate problem.

As housing tanks, more and more people will default or walk away from a loan for $500,000 on a house now worth $300,000. More bad debts. Also, it depresses home prices further. The peak period for ARM resets is this fall if I believe. Additionally, there were many projects started at the height of the boom that come online later this year or next that will further depress condo/rent prices in the areas around them.

Since housing/construction/suburban build out was the major engine of economic growth in the US (other places? I dont know), this will continue to wreak havoc on consumer spending, job growth and other items. Housing prices have a long way to drop before they return to the historical mean and corrections usually "over correct".

Where do we stand? People owe more than their house is worth and can't afford the payments. They are already maxed out on credit cards. Following a massive tax cut to the rich, a negative balance of trade and an expensive war in Iraq, the US govt is also up to its eyeballs in debt. This means the Fed may be pushing on a string when trying to stir the economy by making it cheaper to borrow. Who can afford to borrow at any cost?

The Europeans have their own property bust in cards. The Chinese and OPEC nations might not want any more US backed junk.

Now, superimpose peak oil. Oil prices will drop, but not as much as they should because global demand is higher and as the price drops, countries priced out at $95/barrel will get back in. Thus, energy costs stay high causing inflation, while the economy is in the dumps. Look like 1970's stagflation yet?

This recession will likely drag on for a couple of years (in my uneducated opinion). The severity will depend on whether or not you're the one who lost his/her job. My guess is that it will look alot like the early 1980's. As things start to get better, it will become apparent that we are on the down slope of the oil peak. This will start a second leg down. After that it's anyone's guess.

A recession is inevitable. It's a normal event in economic cycles.

We don't know if we are at or post peak. Most experts think we are not. The current high energy prices may be due too peaking oil production or maybe just due to a temporary slowdown in the growth of oil production.

If we had $ 20 oil, the recession would have been later and/or less severe.

If there is a recession, it was caused by foreign investors dumping dollar denominated loans. Those loans had to be transferred from private investors to government to keep the money flowing, which has now happened.

I don’t believe this recession/depression was caused by PO however PO will exacerbate any attempts we make to “build” our way out of the mess.

This recession is due fundamentally to the exhaustion of credit driven consumption. There has been a huge misallocation of investment into houses, restaurants, resorts, prisons, lifestyle drugs, and crap from China, while we have significantly underinvested in the fundamental infrastructure of our economy. Our manufacturing sector has hollowed out. Our bridges, roads and sewers are crumbling. Our education system has become infected with credentialism and lower standards.

We have been spending like there is no tomorrow. Maybe people are more Peak Oil aware than we give them credit for!

How would you pull out of a recession/depression post-peak? How would you have economic growth when there is no cheap energy to grow with?

THAT is something that never occurred to me! Some kind of weird subconscious thing driving everyone to gather nuts for winter? Only, being who we are, we're gathering the wrong kind of nuts. iPods and Jet skis instead of garden hoes and good work boots!

The Bush administration had nothing to do with the the financial meltdown.

It is soley done by Wall Street investing in mortgage portfolios that were a joke. They had no idea what they were buying and how much it was worth. Now they realize they bought junk and most of it is worth very little if not nothing.

joeltrout

i don't know how to connect all the dots, but i does seem apt to me that US debt load began to build right about the same time as domestic oil production peaked. and as the rate of increase in worldwide production begins to taper off.

i imagine the economy's relationship to oil supply as a motorcycle jumper lifting up off a bell shaped dirt mount. as he approaches the convex portion of the mound and nears peak he yanks up on the bike and leverages up for height on the jump. that is debt.

increasing aggegate debt keeps the economy growing, at the price of the servicing costs of all that debt. to service the debt, greater underlying input is required,and that too must be leveraged to a greater degree as each subsequent increase is a little smaller than the one before. but you only start the process if and when the underlying energy input boom that was actually driving the 20th century economy begins to dissipate, when the upslope goes convex. we've been in this convex period for 30 years or so.

it all works out ok, as long as the underlying energy input is actually increasing. even modest increases can be further leveraged. but the peak represents an absolute limit to leverage because the debt payments cannot be serviced by further leveraging the subsequent energy increase.

recessions that occur on the upslope are corrected by more leverage. and this process is seen myopically as the capitalist miracle. bushco's policies are an extreme example of this general principle, things like funding a war and cutting taxes at the same time. but they are no different in kind than anything else in the last 30 years. just more schemes to repackage and convince ourselves to borrow more against the future.

in this scenario, the question is not whether PO caused the recession, but whether PO will prevent us from employing the same empty methods of pulling ourselves out of the recession.


basically, the idea is that no matter how you finance it, underlying energy input is still going to be the arbiter of economic growth. it's just a matter of whether you pay as you go or pay at the end when the loan comes due.

Peak oil has very little to do with the subprime fiasco, the problem with bond insurers, etc... and it's really difficult to tell just how much of a role it is playing in the price of gasoline.

The problem is almost purely one of extending credit to the uncreditworthy. A Pyramid Ponzi scheme is reliant on a fresh number of recruits feeding the lowest tier. When there is a lack of regulation, or lack of enforcment of regulation, anyone with a pulse is assigned a place on the lowest tier. People who credit peak oil with causing this problem will argue that the higher price of gasoline leaves less money to pay mortgages, but this problem could easily exist if gasoline were a buck a gallon. Prices simply would have ratcheted even higher for real estate, if more dollars were available.

i believe there is an indirect underlying causation, insofar as asset bubbles are the only substitute for real productive growth when the total volume of energy available to the economy peaks.

while you cannot draw a direct connection between peak oil and lending practices, the willingness to loan to sketchy borrowers is symptomatic of the lack of other more substantial options for the creation of economic growth.

Ten years ago oil cost as low as 10 dollars a barrel. Today it is at 90 dollars a barrel. That is HUGE. We are now back to the 70s with runaway inflation and a stagnant economy. 'Stagflation.'

The current housing/credit/banking system bubble was not created by peak oil, but I would say it was created in reaction to peak oil and that peak oil popped the bubble.

Would we be in the same economic condition today if oil was 10 dollars a barrel? Food, energy and gasoline would be plenty cheap, and a lot less people would be missing their house payment.

I think our current situation can be traced all the way back to 1970 when US oil production peaked. Ever since then the US economy has been digging itself in to a never ending hole of debt.



We've used all sorts of speculative pyramid schemes and ponzi formulas, as well as military force to get a hold of the resources we need to "grow" the US economy.

It appears we are now at the end of line, as there is no creative financing techniques or bunker buster bombs that can revive depleted oil fields.

I would say everything we see today is either directly or indirectly related to our energy situation.

word.