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Is the Second Great Depression Imminent?

Seeking Alpha

December 15, 2008
The world is currently facing the most serious financial and economic crisis since the Great Depression of 1929. How have countries responded to the crisis? Well as we know it, by lending huge amounts of money through bailouts and other tax cuts. So while the current crisis was caused by excessive lending, such as the subprimes, the only answer our governments and financial elites found was lending even more and making money out of nothing.

All of these measures will have an impact on economies, no doubt on that. Before the end of 2009 an –artificial- recovery will take place. Good news you may think? Not at all…

In parallel to the recovery, global oil demand will increase next year as mentioned recently by the IEA. This is where the collapse will occur. Global oil production is about to decline, as major oil fields in Mexico and the North Sea have passed their peak… the rate of decline is staggering (check the latest IEA annual report).

Additional energies and non-conventional oils which should have been here do not exist; why? Very simple to understand, with the financial crisis and oil prices back to the low 40s, major energy investments are either cancelled or postponed (they no longer look profitable). In short, when the demand will go up, oil production will be declining; logically prices will explode. Dr. Faith Birol, IEA’s Chief-Economist, well aware of the seriousness of the situationdeclared on Peak Oil:

What I can tell you is that one day global conventional oil will peak… I think it is going to peak very soon. The main problem here is that the existing fields, many mature fields, are declining.

While you may have found this explanation shaky or over-pessimistic, as early as 2005 the geologist Dr. Colin Campbell (founder of the Association for the Study of Peak Oil-ASPO) declared:

Expansion becomes impossible without abundant cheap energy. So I think that the debt of the world is going bad. That speaks of a financial crisis, unseen, probably equalling the Great Depression of 1930; it’s probable we face the Second Great Depression. It would be a chain reaction, one bank would fail, and another one would fail, industries will close…

What is commonly known as Peak Oil, a decline in global oil production is about to happen: you can ignore it, fight it, but to be sure, you will not escape from it. I will not enter into the details of the Peak Oil debate, an endless one. Nevertheless, here are statements on Peak Oil held by some of the most authoritative groups:

Peak oil is at hand with low availability growth for the next 5 to 10 years. Once worldwide petroleum production peaks, geopolitics and market economics will result in even more significant price increases and security risks. To guess where this is all going to take us is would be too speculative.

 

The end-of-the-fossil-hydrocarbons scenario is not a doom-and-gloom picture painted by pessimistic end-of-the-world prophets, but a view of scarcity in the coming years and decades that must be taken seriously.

 

Deutsche Bank (December, 2004)

More recently, a British Industry Taskforce (e.g. Shell (RDS.A), Yahoo (YHOO), Virgin, and Solarcentury) conducted a vast study on oil production. They concluded that, “peak oil is more of an immediate threat to the economy and people’s lives than climate change, grave as that threat is too”and added “the risks to UK society from peak oil are far greater than those that tend to occupy the Government’s risk-thinking, including terrorism”before asking the government to urgently take action.

Here is the “recipe” for the greatest disaster ever. What cheap and abundant oil created, Peak Oil will destroy; our failure to invest in alternatives 10 or 20 years ago is about to fall on us. Michael Meacher, a former British Environment Minister and current Labour MP similarly declared on what is coming:

This is an apocalyptic scenario. In terms of industrial production, in terms of the food supply but above all in the terms of the transportation sector, we cannot continue as we now are.

 

Like in 1929, this Second Great Depression, caused by hyperinflation (within 3 years) will have dramatic political consequences:

As oil prices rise, it will be millions who suffer, millions of ordinary people who are just trying to get on with their lives, millions of ordinary decent people will be forced into states of anxiety, depression, fear and anger.

Voters take to new ideas, even radically new ideas when the system that they have trusted, worked with, admired and felt comfortable with falls apart.

Peak Oil may well be an important catalyst that helps us to win political power because we are the ones talking about it now.

 

The British National Party and its leader Nick Griffin are well aware of the seriousness of the coming crisis, yet for them it is seen as a unique opportunity. History is here to remind us that dramatic changes can happen so fast that we don’t even see them until they have happened. Nick Griffin, who is passionate about Peak Oil as one of the BNP permanent staff members told me, is also a racist, holocaust denier. Make no mistake, in a post-Peak Oil world Mr. Griffin and his look-a-likes throughout the world will do all they can to apply their heinous political agenda.

The process has started and once again Europe will face its old demons, fuelled by populism, unemployment and incompetence from mainstream leaders. As mentioned in a recent Newsweek article, un-favourable views on Jews have climbed from 20% in 2004 to 25% today in Germany, in France from 11% to 20% and in Spain from nearly 21% in 2005 to about 50% today. Yet the worst of the crisis is just a few years away and nobody seems to perceive the seriousness of the situation. In fact, the current crisis will soon be seen as no more than a gentle prelude or the “good old days”. Denis MacShane the author of the Newsweek article similarly observed that “the BNP was now the fastest growing political party in Britain”.

Wake up!

Seeking Alpha Article

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