Thanks Saul

Regarding peak oil; yes the supply capability will probably decline slowly and evenly, but that doesn’t mean that prices will increase slowly and evenly. They will come in fits and bursts and you can bet your bottom dollar (literally for many) that we will not be adequately prepared for it. This jerky price-increase pattern has well and truly started. Whether or not we have actually reached global peak production is a moot point when we consider the rapidly growing demand especially in China. The demand/supply ratio is rapidly blowing out of balance and that means escalating prices…..in the very near future.

Even if it does happen smoothly, there is no way that I can see us preventing a real recession, not one defined as a short period of no growth, but one of very significant decline. No single or combination of alternative fuel sources can match oil in terms of quantity of supply or price, nor come anywhere near it. This means that productivity and economic turnover will plummet, and our way of life will drastically change.

Peak oil has got to be an economic consideration of the highest importance.

Unfortunately in speaking the common language that you refer to, many forget that GDP is such an imperfect measure. I would actually put it much more strongly – GDP is a very highly misleading measure.

The idea that the economy has to continuously grow or almost so must be challenged most seriously. Sustainability and hence stability with perhaps a small degree of growth in terms of good developments and better efficiencies has got be our goal rather than rapid continuous growth in scale of production.

“Per-capita real GDP has risen 41% since the last recession”. That’s an astonishing claim, especially with 8 declines in that period! Surely we would have a vastly improved health system along with many other improvements, vastly reduced rates of taxation or a vastly increased discrepancy between the rich and the battler, or all of the above. Where has this supposed increase gone, or is it just another example of a highly unrealistic measurement?

Cheers Saul,

Thanks for your insights. i agree entirely in your last post.

Keep up the great work.

Here here! The important point that Saul has made is that the next downturn will involve both US and China because of problems arising in both countries internally. AS well, there is the importance of US demand sustained by the unsustainable deficit that is driving the Chinese growth. I was struck by the ideological nature of the bubble bursters that you describe. In China, it's the fate of the CCP that matters, in Japan it's the 'moral fabric'. The other day I was struck by how much modern American decay seems to reminds me of Breshnev's Russia - insane optimism in the face of no one knowing how to run things anymore.

I must admit I'm dubious about the timing conveniently waiting until after the 2008 Olympics for the bubbe to burst. Since bubble bursting doesn't always require an ideological master - sometimes resources just run out. The economic impact of bird flu has been widely canvased. Anybody want to volunteer to go and kill chickens in Iraq?

The real problem that current economic thinking has - is that it's not just peak oil - it's peak everything - that we're going through. Rational economics from now on should/will be predicated upon a world of decreasing resources. It always amazes me that so many economists seem to think that the world is flat and infinite..

I just don’t think any US / China downturn is going to be that significant for us. Australia was intimately connected to Asian economies during the recent ‘crisis’, but it hardly affected us. It is not quite a global village yet. We can still shield ourselves to a fair extent from international downturns. But if we are to do this, we really need to get our economists to give due consideration to the health of our domestic resource base and to imports that we basically can’t survive without, and proportionally far less consideration to all the rest.

What is really important is Australia’s resource base and one big import – oil. This is the bubble that is on the verge of bursting… with vastly bigger consequences than a downturn in the US or China. Indeed, this oily bubble will burst in the US, China and every other major economy at about the same time, unless the bigger and more powerful nations become so desperate that they actually squeeze us and other little nations out of the oil market and steal our share.

It won’t be the effects of those economic downturns that drags us down, it will be the direct effect of fuel price-hikes. It won’t be the cost of fuel itself that gets most of us, it will be effect of fuel price hikes on the cost of essential goods and services, on businesses, on transport networks and food-supply lines, inflation and sudden unemployment for many.

I don’t know – I just seem to be reading much more significance into peak oil than just about any economist. I think economists are being extremely blind to an enormous and blindingly obvious threat to our economy, let alone to the very fabric of society.

I think that Saul is very brave to forecast anything, in today's
uncertain world. When you get it wrong, people rub your nose in that, so I tend to follow the so called global megatrends.

I see Peak oil as less of a problem short term, its more a question
of politically unstable oil. Lets face it, the West is hooked on energy, yet the risks to reliable energy supplies are huge.
Bin Laden wants to blow up Saudi pipelines, the Iranians are determined to get their bomb. Israel is determined to stop them and already has the bombs to do it, care of George and Co. So anything
could happen really. If 5-10 m barrels daily are cut from world supply, oil would soon go past 100$ a barrel.

The best that Australia can do is to acknowledge that its probable
that the proverbial sh*t will hit the fan sometime in the Middle East and be ready for it when it does.

We have alternate sources of energy that we can develop, just the research and capital investment needs to happen, which the Govt can influence by its policies. There is no shortage of super fund money to do it with.

I used to own an award winning export company, which I sold to take life easier. One of the most frustrating things I faced was seeing the amount of well meaning bureaucrats who approached me when I did not need their help, all at huge govt expense. Next thing I was lumbered with a heap of govt charges, which restricted my ability to
be competetive on a global scene.

Lets look at some of the megatrends:
Housing prices are ridiculous in Australia, they will have to come down at some point. Young people can't afford houses anymore.

The US economy can't sustain their deficit forever, something will have to happen to drastically reduce the value of the US $.

Things are so unstable in the Middle East, that something will happen eventually. So a punt on Aussie energy stocks is a pretty good bet right now...

I like jokes. This “Australia's lengthy period of growth” was eventually estimated akin a local level of unemployment – by playing digits while assuming househusbands as a non-existing pattern and excluding the pushed into work-for-dole projects from the unemployed (in official statistics) as well.

Moreover, all these predicting the “trends and policies”, milking state's coffins for “economical considerations” omit a very substantial issue that is a broadening access to alternative (non-organic in this context) energy sources by a growing number of countries.

Maybe, an already announced Russian project to establish an industrial He-mining on Moon circa 2015 is a practical correlation to flattering the whit prices only.