Tuesday, July 21, 2009

How peak oil relates to debt

Peak Oil Overview - July 2009

"The underlying problem is the fact that the current level of debt (by individuals, businesses, and governments) cannot be maintained, unless we have a growing economy. The reason we need a growing economy for the debt system to work is that a person can borrow from tomorrow only if tomorrow is better than today. (This is especially the case if loans require the payment of interest.) But if tomorrow is worse than today, borrowing from the future doesn't work. Even if tomorrow is the same as today, the system doesn't work, if loans need to be paid back with interest. The problem is that the economy cannot grow unless oil production is truly rising. This lack of growth in world oil production since 2005 is what is causing the debt collapse we are now seeing."

Posted by drewster @ 10:09 AM (796 views)
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2 thoughts on “How peak oil relates to debt

  • Fixated much? The economy can grow without oil if we’re improving energy-efficiency or if using other sources of energy, or if people travel less. It is not the lack of growth in oil production restricting debt, but the overpricing of oil through the futures market causing a drop in real demand, requiring less supply (less production) to fulfil that demand.

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  • Genuine GDP growth is not possible without an increase in energy consumption. Improving energy efficiency doesn’t help, as any savings from energy efficiency will normally be invested in more plant/equipment, which has required energy to manufacture. Thus the net effect of increasing energy efficiency is negligible.

    Historic data shows a clear link between GDP growth, RPI inflation, and energy consumption. GDP growth without increasing energy consumption always results in higher RPI inflation.

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