Wednesday, October 08, 2008

the day after - part one

The financial conflagration gathers strength – touched off by the mortgage crisis as a dynamite primer, but exploding on account of unsupportable shady investment practices. Lacking steady dribbles of cash to cover the heavily leveraged, endless trillions of speculative credit/money, the game ends. Various billion dollar bailouts are a drop in the bucket – not even addressing mortgages that have already failed. Much less all the tea in Iceland.

The big tent of speculation is in greater part hot air, and removing a few supports of real cash here and there has started the whole bit of tatty cloth fluttering towards the ground. The carnival is defunct.

This crisis follows fast on the heels of record high oil prices, which have then been hammered back down by the economic conditions. This has long been predicted by peak oil analysts, although usually as a progression of high oil prices directly causing the economic downturn. While oil prices are a contributor to the recessionary economy, the financial crisis is not directly rooted in oil prices, but the effect will be the same.

Tom Whipple and Steve Andrews comment:
In recent months US and world oil consumption have been dropping due to high prices and the worsening economic funk. Whereas in recent years worldwide demand for oil increased by about 1.5 million b/d every year, that number will shrink to a few hundred thousand b/d annual increase for 2008. If the economic situation gets much worse, demand for oil probably will go into actual decline.
If, as seems likely, the omnibus financial bailout does little good and the world goes into a prolonged recession, then we probably are on the peak/plateau of world oil production right now. Demand will drop, production will be slowed, and new multi-billion dollar oil projects that are not already well underway will be delayed or cancelled due to lack of demand or capital to pay for them.

The stock market had been resonating on the border of non linear for a while now, swinging back and forth with a marked lack of rhythm or reason, preparing for the now apparent state shift. But the market is just a sick canary, and there is no reason to expect the financial system will be stitched back together barring perhaps one possible "fix" – global, concerted inflation to spread the capital shortfall around and get things moving for the big boys. Of course, this "fix" would turn the middle class standard of living into a Zimbabwean delight.

Tomorrow, how to change your life.


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