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Tuesday, August 22, 2017

Not your ordinary recession: a perspective from a visitor to the UK

Posted by steve on January 6, 2009

My last trip to England showed a country being hit by the effects of the peak of oil production. My visit over New Year shows a country nose-diving into a new kind of recession: one that has no end.

Some examples:

UK’s refinancing timebomb Sunday Times 4 Jan 2008 – Some £50 billion in loans expiring will need refinancing and the prospects are not good.

Number of business failures set to surge in 2009

As the reams of newspaper articles laying out dismal prospects for 2009 appear before us, there is an underlying belief in the recovery will come in a few or at most ten years, and 2008 will fade into memory as a year unremarkable. Not so from the perspective of Oil Peak. We are looking into the tangled guts of a system that has stopped working because the cheap and easy oil that feeds it has peaked.
We are looking over the precipice into the long decline, aptly called the long emergency by James Howard Kunstler.

The logic of this is almost too simple, but not anything you will find explained in the mainstream media.
The system we call business as usual is full of disconnects – think of it like a plumbing system with faulty joints and bends. Despite leakages, the system still delivers water to the end user. However, when pressure drops, the taps run dry and the installation is not only useless, it wastes valuable resources as well.
In this case, money is rather like water. You want to stuff money into the system and see more come out. At least you would want to know you can get basic services like food water, shelter etc. Any business needs a supply of capital and cash to start up and keep going. If you borrow money, you have to be able to pay it back at, say, 4% interest a year.

Standing in front of the bank manager or an inventor you have to convince her that you will be able to expand your business to be able to pay the loan and the interest off in a reasonable time. Multiply this by the number of businesses around and you will see that in order for any money to come in to the system you must be convinced everybody will make more money than they are already doing, to at least pay off the debt from the interest.
When it works, this way of doing things creates jobs, provides an endless array of services and goods and generates tax income to run the civil sector.
When it does not work, you put money and your own time into the system and get very little out.

This is where the connection to oil comes in: look into any business plan of any business and you will find a massive reliance directly or indirectly on fossil fuel. Electricity, the life blood of any office, comes increasingly in the UK from gas fired power stations.
Energy price hikes make everything more expensive, reducing profits and undermining the logic of the business plan and indeed the whole set-up.

From this perspective you can see how we got into the situation we are in. Peak production of cheap oil in late 2005 started a process of price hikes and started to knock holes in the wealth generation machinery. First hit were airlines and transport sector, creating job losses and credit defaults. From there the spiral downward continues. In this context a much larger number of businesses cannot make the business plan work. Trying to kick-start the economy now that oil is cheap will only result in a new wave of price rises as economic activity grows, oil demand increases, the production ceiling hits and the bidding goes up to push oil back up.
The current wave of low prices is merely the receding of the wave of the economic tsunami that will inevitably come back to hit us again.
The current low price of oil means stalled investments in new wells or increased productivity. With 60 of 80 oil producing countries past their peak we cannot expect any increase in economic activity to be long lasting.

What does all this mean for the oil aware denizen in 2009?
Don’t be fooled by oil-unaware arguments. True, Woolworth’s demise is partly their own doing in trying to sell everything, but there is nothing to say that just because a business is working today, it will be able to continue as more and more job losses produce more and more unwilling or unable to buy their stuff. No, all business plans are energy reliant and I would say 99% are energy unaware.
You need to become familiar with other economic models. Interest-free banking and cooperatives are two I recommend.
Interest free banking at least shares rewards and risks and is more human.
Cooperatives, especially those involved with community supported agriculture, are designed to provide their owners with economic security and /or basic services at below market prices.

In fact, finding ways to ensure a supply of the basic necessities for all will be a major challenge in 2009. The leader in the Telegraph from Jan 2 expects there will be some people going hungry in the UK during 2009.
The system we live in already has major homelessness and poverty, in my opinion evidence of abject failure.
Oil aware people need to start to speak up outside the confines of discussion forums to send a clear message to politicians and civil servants: the fossil-fuel dependent way of life is on its last legs. Energy and food security for all need to become the top priority. And of course the good side of all this: this means there will be meaningful work for all, we expect to see a kinder, more generous UK, less stress and pollution, more local business and solidarity. The time to transition is now, 2009, while we still can.

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