In the research for a book I just finished, I came across this website. In reviewing the many posts and the different threads of discussion, I see a decline scenario that no one seems to have broached as yet. I will call it the Peak Oil Perfect Storm. While "peak oil" in of itself seems to be a harbinger of disaster, they are many other factors at play that I feel will exacerbate our ability to forestall a hard-landing. Here are some of the things I see:
First: With the lowest interest rates in 40 years, huge deficit spending, and a huge tax cut, we are still having a great difficulty finding economic growth pre-peak. M-3 credit card money supply is at a high only seen after the 1987 crash. June alone had a 20% increase in the trade deficit to 55.8 billion dollars. We may not have any real growth from here on out, regardless of peak oil.
Second: In 2001, a study by then Secretary of the Treasury, Paul O'Neill, projected future "entitlement" expenditures (Social Security, Medicare, Veterans benefits, government retirement, etc) would exceed revenues by $44 trillion dollars. It estimates that closing the gap would require the equivalent of an immediate and permanent 69 percent across-the-board income tax increase, or a 45 percent cut in Social Security and Medicare.
About 82,000 Americans 65 or older filed for bankruptcy in 2001, up 244% from 1991, according to the Consumer Bankruptcy Project, a study done at Harvard. Although there is the perception that many older Americans are affluent, 44% of retirees say Social Security was their primary source of income this year, up from 38% in 2000, according to an annual survey by the Employee Benefit Research Institute. The personal savings rate for Americans has dropped to one of its lowest levels ever--.6 percent. (now .2% Feb 2005)
http://www.economagic.com/em-cgi/data.e ... /psavert+2 Seventy-seven million baby-boomers are going to start retiring in five years' time. As they do, the number of retirees in America will double. At the same time the workforce supporting them will grow by a mere 15%. Solving this problem will hurt like hell.
Third: At 5.1% (now 6.2% Feb 2005) of U.S. gross domestic product (GDP) and growing, the current account deficit (CAD) is now even bigger than the federal budget deficit. It's also much larger than it was in the mid-1980s, which was the last time the CAD triggered a big financial crisis. This included a 40% decline in the value of the dollar, a huge spike in U.S. bond yields and the 1987 stock market crash. The only thing standing in the way of a repetition of the 1987 fiasco (or worse) is the continued flow of foreign capital into U.S. assets. With the ever increasing value of the European Union's euro to the dollar, more foreign investors are moving toward investing their money there, rather than in dollars. This trend could well denote great economic turmoil in the financial markets.
Fourth: 65% of today's mortgages are progressive rates--not fixed. As interest rates rise, people are going to lose their homes. For many senior citizens, their only major asset is their home. It becomes a de facto pension. That's a problem if they file for bankruptcy. Although pensions are a protected asset, in most states only a small amount of home equity is protected in bankruptcy. So if the value of the equity exceeds the state exemption, then a person who files for Chapter 7 bankruptcy will lose their home.
Fifth: Water shortages. We are experiencing record droughts in many areas, especially the West. I was a National Park Ranger for many years and worked all along the Colorado River. Lake Powell at full pool is 27 million acre feet (MAF) of water. It is now down to a little over 9 million acre feet.
http://www.usbr.gov/uc/water/crsp/crsp_40_gc.html If it drops much more they will not have enough head pressure to generate electricity. Also, by decree of the Colorado River Compact of 1922, they must release 8.5 MAF each year for the states of CA, AZ, NV, and the treaty agreements with Mexico. The entire economy of the West is tied to this water. And to compound matters, the historical flows have never exceeded 7.5 MAF since the pact was signed in 1922. Same holds true for Lake Mead.
James Howard Kunstler quote:
Quote:
The water situation in Las Vegas is dire. The city has absolutely no capacity left for expansion under any circumstances. What's more, Lake Mead, the impoundment behind Hoover Dam, is down to historically low levels, dropping a foot per week lately, and may soon fall so low that the turbine intakes on Hoover Dam no longer operate, meaning goodbye electric generating capacity. The Colorado River's flow in 2004 was 70 percent below average, and the region was gripped by a years-long drought. Climatologists agree, in fact, that the desert southwest has actually been enjoying two comparatively wet centuries and is now reverting to a drier cycle. Global warming could make it much worse.
http://www.energybulletin.net/3777.html Sixth: Major culture shock. We are less than 5% of the world's population and consume 40-50% of all the resources, while being the most overpopulated country in the world in terms of impact on our environment. We took more than our share and set it up as a standard of living. The three first words out of an American baby's mouth are, dada, mama, and more. In my opinion, we are the most unstable country in the world with regard to being prepared to weather a peak oil crisis.
Couple all this together, and I see the formation of the mother of all storms. Individually, any one of these could be a major crisis, but together they leave us with few options. I am impressed with the caliber of people on this site and I hope I can contribute to some meaningful dialogue. Looking forward to your follow up posts!
Monte