Blast from the Past

I wrote this in my post of November 28, 2007:

An Apocalypse NOT!

I get a decent amount of email from the “doom and gloom” folks asking me when I think the “collapse” takes place. Collapse? What collapse?

The decline in oil availability will be a slow, grinding process (in my opinion) that will not fit nicely in a 2 hour movie, 3 minute pop hit, or 15 second political sound bite mindset. I hope I can disabuse the doomers that visit here that they need some kind of bomb shelter. Although I fully appreciate your point of view, my commentary is directed toward how one might direct the investments that they have worked so hard for. I sincerely believe that the U.S. oil supply situation will have profound effects on our financial and real estate markets and currency over the next 5 years, but I do not think this will happen on a Tuesday afternoon. Nor do I believe that we will descend into anarchy. Are not resource wars (starting with Iraq), and the prospect of hyperinflation, and stagnant or declining GDP enough? Well, at least I hope they are.

My issue is this: Why should you work so hard only to pour your investment dollars into a leaking bucket? You would have been better off spending those shekels on vacations, expensive wine, and song. (Actually, that sort of appeals to me.) Some might find that pecuniary, but those that do probably did not spend a career doggedly pursuing some level of financial independence. Actually, I am quite sure that on some level the tied dye set is HOPING for a collapse. Teach those yuppie pricks a lesson.

I know that a lot of the peak oil blogsphere is filled with disaster scenarios, but I sincerely doubt this is the most likely outcome. That argument that we will experience immanent agricultural disaster due to declining energy inputs is just not that likely. The markets are efficient enough to redistribute those inputs away from Suzie-Cuzie’s trip to the mall and into the farmer’s tank and fertilizer bin. Yes, food is going to get much more expensive, and yes, this will fall disproportionately on the poor. But the aggregate AMOUNT of food available to Americans is not the problem, but rather how to pay for assistance to the poor.

This is not to say that our agricultural exports won’t decline and harm others. I sadly think that is a rather likely outcome. Those of you that have been following my blog know that I have great concerns in this area. Wheat and corn production will become an increasingly expensive proposition, and that will negatively affect aggregate crop production, just look at wheat inventories, and in turn available exports and domestic meat production, but the lesson of history is that people will be “incentivized” to produce some of their own food. As an avid gardener, I can tell you that a simple kitchen garden can overwhelm your ability to consume all that is produced at harvest time, the surplus of which can certainly be preserved. It will not be necessary to produce ALL of our own food (at least not for 20 or 30 years, all bets are off at that point in the oil production curve) just enough to bring the marginal scarcity food cost down to an affordable level.

I get email from one dour fellow who tells me that we have lost all of the knowledge to do this. What knowledge, gardening? Get a grip, and join my garden club. You would be impressed with what these folks know.

As my friend FireAngel from theoildrum.com likes to point out, if India can feed over 1 billion people with less arable land and far less fossil fuel imports, North America certainly can feed its population.

There is also some slack for the economy in the wasteful way in which we use oil. FireAngel recently pointed out that driving around in circles does not increase GDP.

If it were going to be Armageddon, what would be the point of investing? Better to blow it all on a trip around the world.

No, the Apocalypse won’t be arriving anytime soon, but a paradigm shift is, in my opinion, underway as I write this. In this paradigm shift, there will be winners and there will be losers. Not much different than our current reality. It is the INSISTING that things be a certain way that will get you into trouble. Flexibility and adaptability will go a long way in the environment I foresee.

No, it won’t be business as usual. We are likely to be a whole lot less mobile, live in smaller homes, and consume less frilly BS. We won’t be commuting as far, be more involved in our communities and our children’s lives, and we even might all have a new hobby – gardening. But I ask you: Is that really Armageddon?





End of 11.28.2007 post





Today, somewhere in Rural Tennessee... (with the theme from "Terminator" playing in the background....Oh, and BTW, in the post..."Fireangel" from theoildrum.com? I renamed him the Mad Scientist (he really is a scientist) and retained him as an analyst at the Sleepy Hollow Funds.)





I am still of the belief that there will be no Armageddon, with mobs roaming the streets looking for people to eat. I do think that there will be incredably rough patches, and that the legions of "the poor" will grow fantastically, the economy will not cooperate as projected to fund the anticipated tax revenues, which will lead to issues with the currency and the various social programs.



The biggest adjustments are going to have to be made by the folks depending on transfer payments and benefits and the upper middle class to semi rich, as the later groups benefit from credit and leverage in ways they are completely unaware of.


(I was speaking with a buddy of mine this morning. He's my age, has a son my son's age, a Middle Class millionaire (I love that term... I use it to describe guys with a few million bucks that everyone thinks are "rich", but he has to get up early tomorrow to go to work to keep the managerie going... he grew up in a 2 bedroom apartment in working class New York City neighborhood (and no, it isn't me), and if you asked him back then what "rich" was he would have described his current circumstances... he reads my stuff, so.. .Hey, bro, ain't life grand? Now, get back to the grind!), and we were discussing expectations - ours, our wives, our children's, as well as our efforts to provide for those expectations - and how difficult it was to feel secure that we have been and are continuing to do the right thing (in working to secure our family's futures). The problem is in the "expectations". "Expectations" can prove bothersome in such disparate fields such as Politics, Marriage, and Commodity Price Forecasting. )

The Peak Oil "Doomers" had it wrong in that the system was to be compromised not by fire - but by ice. I have commentors informing me that the price of grains is down, therefore my concerns ar unfounded. That just isn't how the commodity cycle works, and grains are a commodity, perhaps THE commodity. They also had it wrong in thinking that the change would be sudden and violent (although it could happen that way, I would describe it as a low probabiltity/high consequence event).

No, we will constantly accept a "new normal", that will come upon us in stages, with the greatest change in the economic and energy landscape occuring during the 1/2008 to the 12/20012 or 13 period. It will be interesting to see how grain (corn) prices react to a 4 million bpd oil import decline during that period, as well as how the U.S. economy and tax revenues hold up.

Mentatt (at) yahoo