Thursday, September 13, 2007

Downsize, Downsize, Downsize

Then Simplify, Simplify, Simplify.

I write this blog for a specific audience - successful, 35 +, and responsible for providing for, and providing direction to, a family. You have worked hard at a career for a decade or two (or three, or more), saved some money, own a business or are a professional, and own a home, and like it or not have made some implicit “promises” to spouses and children. In a world of declining energy supplies many of these “promises” will, by necessity and through no fault of your own, be broken.

Here you are, a 50-year-old guy with 2.1 children, a dog, and a “$3, $5, or $10 million net worth”. Life is good. You aren’t the CEO of a Fortune 500 company, but your family has the best of everything, and hopefully you won’t be joining some of those big shot CEO’s in prison any time soon.

What is the source of your wealth? How did you calculate that net worth? “Well, my house has $3,000,000 in equity, my stocks are worth $1,500,000, and cash and personal belongings make up the balance.” Or maybe your house has $1 million of equity, you have little financial assets, but your business is worth $3,000,000… Whatever.

How much will your house be worth in a perpetual energy crisis? Zipity-do-da, that’s how much. If the U.S., with a little less than 5% of the world’s population should be required to consume only 5% of the world’s oil (down from 25%), and that is EXACTLY what is going to happen by 2020 or so, the transportation system that supports the value of your home will not exist. No tickie, no laundry. In 15 years, the oil available to America will decline in the neighborhood of 80% (please feel free to email me and I will happily show you how I arrived at that number), so, how exactly are the landscape folks that keep the Everglades (I live in South Florida) from consuming your yard and home going to make it out to your spread? And, exactly how do we evacuate 5 million people if a category 5 hurricane should threaten without the aforementioned transportation system? People will figure that one out pretty quick, and the demand for homes in hurricane zones, or areas lacking water resources, or mountainous regions requiring provisions to be transported over long distances will collapse like a wet paper bag…

So, you have a successful business or practice. Is it necessary for your customers/clients to drive to your place of business? There will be a great many less of them making the trip with an 80% decline in oil supplies for American consumption. What about your employees? Are you going to provide a bunkhouse for them within walking distance of your place of business? Do they want to live in a bunkhouse? Would you?

So much for the equity in your home, your income, and the value of your business -
The bottom line is this: Most of what you value is an illusion brought to you by cheap and abundant energy. Unfortunately, energy will neither be cheap, nor abundant, in the very near future. Not next tuesday, mind you, but you can draw a sloping line on a graph, right? We did those exercises in high school math for a reason. The U.S. consumes nearly 20.5 million barrels of oil per day in 2007 - and in 2020 we will be down to around 5 million barrels per day. The slope will begin gently, and then accelerate. The worst of the effects will be somewhere in the middle of the sloping line. No amount of financial engineering, politcal debate, currency devaluation, war, or other human activity is going to change the outcome - although some SIGNIFICANT reduction in consumption could elongate the sloping line, and hence the length of time for the outcome to unfold, it will not change the outcome.

No one likes this vision, especially people who have worked hard and sacrificed their entire lives to put it all together. In doing so, you must have made a lot of good choices. It is my opinion that you must make a very good choice, RIGHT NOW, and continue to make good choices, or else. But that was always the case, wasn’t it?

Yours for a better world,

Mentatt (at) yahoo (dot) com

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