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That was a cute move by
President Obama last week, calling out the "oil speculators" with a
memo to his Attorney General, Eric Holder. The President proved a few
weeks ago, in his energy speech to the nation, that he doesn't understand how
these resources are produced and traded. Consequently, the people he
addressed remain clueless, but ticked off nonetheless. And the logic of
politics now compels Mr. Obama to call out the dogs on... people who make
money trading paper claims on oil?
Funny, he didn't show any interest the past two-plus years in people
who make money swindling taxpayers via booby-trapped Collateralized Debt
Obligations and Credit Default Swaps. Maybe those things sound too abstruse
to get excited about - but believe me, it was a heckuva
lot more money. In fact, a case could be mounted by God's attorney general -
if he has one - that Mr. Obama abetted a gigantic conspiracy in fraudulent
financial paper which makes the oil speculators look like shoplifters in a
Kentucky WalMart.
For those of you interested in the reality side of things, here's the
scoop: The price of oil is going to go way up, and way down, and way up
again, and way down again until everyone is too broke to ask for any, and
companies are too ruined to go get it for them, and governments are too
broken to interfere in the process.
The oil speculators are normal characters in a stressed market doing
what needs to be done on the margins of "price discovery." The
trouble arises when price discovery occurs in turbulent times and places, for
instance, when people in a part of the world called the Middle East &
North Africa (MENA, for short), start rioting against their governments,
which has been the case persistently for a couple of months now - a region
that contains about half the world's oil reserves. So interested observers
conclude there's a fair chance that oil production there might face
impediments to normal operations.
And indeed that is already the case in Libya, where some of the
world's lightest, creamiest, sweetest crude oil has stopped flowing into
pipelines and tanker ships. With protesters being slaughtered by the score in
Syria, and Yemen's president about to get a one-way ticket to Palookaville, and the Saud family cowering in their
solid-gold senior housing facility, and affairs looking sketchy at best in
other nations around that neighborhood, speculators at the margins have
called for higher oil prices.
You will recall, perhaps, that hoary old concept, the "bumpy
plateau" of the peak oil story. This was the idea that the actual
tippy-top "peak" of peak oil, studied at close scale, would
actually take the form of a raggedy line representing the interplay between
supply, demand, and most importantly the frantic psychological response of
humans operating in markets. It was clear that economies would stagger
under the burden of high oil prices, and economic activity would contract,
and people would use less oil and the price would go down. When prices were real
low again, people would resume buying more oil (and other stuff) and economic
activity would mount and oil prices would go up again. We knew this would
happen for a couple-few cycles, and that then things would get... more
interesting.
We also knew that this would occur with some "ratcheting side
effects" - that with each cycle of up-and-down oil prices, against the
background of permanent a decline in easy-to-get oil, there would be less
money available to find, drill for, and produce future harder-to-get oil.
What we did not know - at least in the morbid clerisies where academic
economists spawn - was that the permanent decline in easy-to-get oil would
introduce gross disorder into our money systems, nor that we would
incessantly lie to ourselves about the health of our money systems, until
their operations were so fatally compromised and impaired that their failure
was likely to put us out-of-business even before worse imbalances came to
pass in real oil supply and demand.
Of course, we also didn't know that MENA would explode in
political unrest in early 2011, or that the earth below the Japan Trench
would shudder badly, and no doubt there are other things we can't predict
that will affect the global economic dynamic. But you do what you can with what
you've got to work with, and here in the USA collective intelligence space,
we're not doing such a great job.
Tensions keep rising around the distortions and perversions now loose
in the money system. You can get a headache thinking
about inflation and deflation - but either way you stand to end up broke.
Either you'll be rolling in worthless money or you won't have any money. The
banana peel of destiny can send you flying in either direction, or first one
and then the other.
We've done a poor job of managing contraction, which is the fate of
societies that have piled up too much complexity. All of our schemes for
grappling with this seem to boil down to one foolish obsession: how can we
keep all the cars running? We're not going to, of course, but we refuse to
even think about anything else. President Obama is merely reflecting the
foolish obsession of the public.
Whenever I give a talk at a meeting or a college, somebody gets up and
censoriously asks we why I can't present
"solutions" to the problems of contraction we face. I do of course.
The audience just doesn't hear them because I don't believe it is possible to
keep all the cars running and I don't pretend that any of the schemes
currently circulating will avail. To go a step further, I'm convinced that we
are committing cultural suicide by using all the cars the way we do, so I am
not the one to look to for rescue remedies in this department. In fact, I am
serenely persuaded that we would vastly improve our chances of remaining civilized
if we gave up on mass motoring and deployed ourselves on the landscape
differently.
By the way, that will be the eventual outcome anyway, whether we like
it or not.
In the meantime, prepare for thrills and chills in the alternate
universe of money. The phase of that story we're approaching looks more and
more like the final scenes of the old Todd Browning horror movie about the
uprising in a freak show. America can have the role of the pinhead, grinning
vacantly while the other freaks burn the joint down.
James
Howard Kunstler
James
Howard Kunstler’s new novel of the post-oil future, World
Made By Hand, is available at all booksellers.
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