The Great Depression 2008 - It can't happen to us....can it?”

Nancy Pelosi is not part of the solution, she is part of the problem.

She's a traitor to the people of this country and sleeps in the same bed with the Bush Crime Cartel.

Why do you suppose impeachment is off the table…

Big difference between 1928 and 2008 is that on the eve of the Great Depression the US Government wasn't already Trillions of dollars in debt to China and Japan. When this debt gets "monetized" - paid off by printing money - inflation will result. So we are looking at a weird scenario where deflating home prices are temporary, but the foreclosures that result will eventually force hyperinflation to set in.

The validity of this argument can be validated or dismissed by gathering a few vital numbers reflecting the current state of the national economy and doing a little addition and subtraction.

It ain't rocket science and numbers don't lie. It's coming, baby. The only real choice is to either remain in denial or try to prepare for something that will make the "Great Depression" look like a garden party.

Mr. Andy Sutton, I enjoyed reading your article that is now posted on our site at

When will high oil prices ( an oil crisis ) trigger a depression in most industrialised Eurasian, North American, and Oceanian countries?

First, a depression generally follows a period of recession.

An overview of the features of a steadily deepening recession has already been given.

Briefly, recession is caused by business slowdown as the much higher prices of oil feed into the industrialised economies. Businesses lose confidence, retrench, lay off staff, and reduce investment in new plant and machinery; retailers see less consumer spending; inflation reduces spending power; interest rates rise. This will cause recession, but not a deep recession.

For there to be a deep recession, there first has to be a credit bubble - a high level of personal indebtedness in the community. This certainly exists in 2007.

Will the collapse of the housing bubble trigger a depression?

Most industrialised countries have seen a huge speculative real estate frenzy by 'mom and pop' investors. Overvalued properties have been bought with loans by banks that cover almost the entire purchase price. The banks have been thrusting money into peoples hands on a rising property market, willfully ignoring prudence and history. Interest rates have been artificially low, driven by the insatiable USA need to sell its federal junk bonds in order to finance oil imports and massive military liabilities.

The stage is set. When interest rates rise, mortgage repayments far exceed the wage earners ability to meet the monthly loan installment. People default. Houses are sold in mortgagee sales for lower values. The inflated house prices collapse. People hold mortgages costing more than the new, more realistic, resale value of their house. Many chose bankruptcy to clear debt.

Collapse of the housing bubble is enough to trigger a deep recession. But it is not enough to trigger a depression.

More is required.

Share value collapses combined with banking collapses and a 'run' on cash, if sufficiently global, will trigger depression.

But local banking collapses and local sharemarket collapses won't.

Will bad loans held by banks trigger a depression?

Are today's banks for practical 'everyday' purposes sound? Yes.

Banks will hold large amounts of 'unrecoverable' debt following the inevitable property bubble collapse. They will hold large amounts of unrecoverable debt from loans to some businesses that fail when consumer spending drops and unemployment rises. But much bank lent money is essentially a 'fiction', and is book entry 'notional' funds lent far in excess of existing real-money deposits (usually ten times the amount of actual deposits is 'available' for lending). Unlike previous crashes, their 'real-money' deposit equity today far exceed the banks true 'real-money' liability. 'Losses' from bad loans are essentially 'book-entry' losses from 'book-entry' created money.

Bad loans - even brief 'runs' on deposits - will not trigger a depression.

Will a huge fall in the sharemarket trigger a depression?

What about the world sharemarkets? Could they implode and trigger a depression?

No.

The sharemarket crash of 1929 was a vast 'speculative bubble' founded on buying and selling companies that were often producing little more than self promotional hot air. Much of the money for the speculation was 'ponzi' loan credit created by out-of-control banks. Today's sharemarkets are constantly re-adjusting and re-valuing companies. Some companies are valued for earning streams, and some companies are valued because they are believed to be growing in size and assets. In a deep recession some will rightly reach 'junk' status because their business is a fading star. Others, even with a reduced earning stream, will retain a reduced but real value (a select few will even rise as investors 're-weight' their choice of company sectors to invest in). Most importantly, there is no culture of 'mom and pop' ignorant speculation in what are little more than shell companies (except in the highly distorted Chinese share market).

Will rising oil prices trigger a depression?

Yes.

When will high oil prices cause a depression?

At some point in the duration of a deep recession.

When might a deep recession start?

First, the credit bubble has to collapse. Next, oil has to become structurally expensive. A reasoned guess post-credit-collapse would be when oil both reaches and maintains a price of close to $US80 a barrel. Temporary spikes to around $US100 a barrel don't indicate depressionary conditions. At the point of oil settling at or over $80 for a year or longer there is likely to be structural (oil component of goods price adjustment) inflation of 10% - 20%. At this point, if price movements in 2005 are a guide, petrol may reach close to $US4 a gallon at the pump. This will make petrol effectively unaffordable for many low income people who have no other transport options (chiefly a USA condition).

New refinery capacity for heavy oil has kept pace with increased reliance on heavy oil as light oil supplies diminish. Mildly recessionary conditions in late 2006 caused demand to fall and reduced prices. A pumping capacity bottleneck, mainly from Saudi and Mexican megafields has already been masked by reduced demand (mainly in Asia) following oil spiking to $US77 a barrel in July 2006.

Business nervousness, changing consumer behaviour, and seasonal slacking of oil demand will likely make any spike temporary, should it occur. Increased bilateral trading in oil (direct from producer to consumer) outside the betting floor of the futures traders has increased, meaning price is more stable. Whether it stabilises at a higher or a lower level depends on the USA economy and on whether Mexico, Venezuela, and Saudi Arabia are able to forego production in the interests of holding prices up. Their domestic situations may force them to sell at a lower price than they would like.

A credit bubble collapse will likely be triggered by rises in USA treasury interest rates. Higher interest rates will likely combine with oil price inflation to remove a larger percentage of tax-paid disposable income from circulation in the economy. Considering the vast USA government debt, the on-going dollar cost of seizing and guarding Iraqi oil ($US5 billion a month by december 2005), and the beginning of a move away from the essentially valueless USA dollar as a currency of international settlement, then the USA Federal reserve will probably need to move within the next few years to make it's bonds more attractive.

The mechanism is to increase interest rates payable on the bonds. (The US could of course back the dollar with oil by seizing all Iraqi oil revenue as 'spoils of invasion'.) Oil prices might reach or exceed the historic oil price high reached in 1980 by mid 2008, driven mainly by decline in mega fields, but tempered by price driven demand reduction. Winter fuel oil shortages 2007/2008 and large hike in natural gas prices - and therefore electricity prices - in USA will add to economic slowdown.

Recession beginning by the end of 2008 is somewhat likely, and USA treasury bonds lose their attractiveness as a consequence. Yet the USA will need to finance an even larger government deficit as structural inflation raises all governance costs, and as unemployment costs rise. US interest rates must then be raised by the end of 2009, no matter how unwilling the government may be to do so. The only alternative is massive government spending cuts, on a scale never before seen. These cuts are extremely unlikely.

The 'structural' pumping capacity bottleneck will likely occur in december 2008 or 2009, cause a spike to $US90 a barrel (unless new Saudi 'sweet oil' fields do come on stream as promised). It is uncertain whether or not oil might remain at or around the $80 per barrel level thereafter. It depends on the price-driven change in consumer behaviour in how much petrol and diesel consumers choose to burn, against how much they are forced to burn in the essentials of living. It depends on what degrees of freedom consumers have to buy smaller cars or motorbikes, to live closer to work, to substitute public transport. It depends on whether consumers believe oil shortage is a temporary blip, or a long term trend. The conditions should be clearer in 2008/9. Recessionary conditions will be apparent by then anyway.

Recession in itself reduces demand. Oil consumption drops. Reduced demand weakens oil prices. However, at some point, the year on year reducing production from large high-volume oilfields (that have passed their peak of production) reduces global supply until it matches the reduced global annual demand. From then on, as pumpable supply drops below even new reduced global demand levels, prices once more increase. The best guess for this point is around 2015.

Deep recession may start before 2015. It may be triggered 'early' if any of the major Saudi or Mexican fields collapse, or if climate causes electrical energy supply shortfall, water shortage, significant crop failure, and if resultant socially hysterical hyper-reaction causes a precipitous collapse in business confidence and employment.

How many months or years will a deep recession last before it becomes a depression?

At the point at which 25% to 30% of the population are unemployed, many more part-time and on-call workers have less work than they want, when there are few business start-ups, when the tax take of government is insufficient to meet its expenditure, food prices have doubled, and when the trend is for no improvement in these conditions.

What is a reasonable guess at the timing of the start of depression?

A depression is more or less a recession that doesn't end. It doesn't come as a single dramatic event, easily identified and widely reported in the news. A 'depression' exists in deeply recessionary times when things have been bad for so long without significant recovery that people start saying we are slipping into a depression. Most people are generally optimistic, and are unwilling to assume the worst simply because business, employment, and spending power conditions are tough. But people will know when they are living in a depression, they won't have to hear about it on the radio. It will be self evident. Even so, before then, we do worry, and psychologically need to 'know' the signs of the 'worst case', the signs indicating the possible 'start' of a depression.

We could possibly use the point at which oil is so expensive that most low income earners cannot afford to run a car, and food and retail prices in general have increased by 20%.

At this point, the cost of getting to work may use up a huge portion of the wages earned. Countries such as USA with relatively sprawling towns and suburbs with poor public transport would be worst hit. Older European cities with residency and work embedded within densely populated cities, and excellent public transport, fare better. At this point, it is impossible that only low income workers are affected. Whereas past depressions have been characterised by an initial imprudent credit hyper-expansion followed by huge and prolonged lack of business and consumer confidence - even in the face of sufficient energy and sufficient capital to keep business growing and employment and money circulating - this 'depression' may be fundamentally different.

The never-before-seen factor this time is that insufficient energy supply limits the possibility of recovery. This time, business and consumers are better informed and more confident due to better education and information sharing, and a fairly good social security 'safety net'. We should be far better equipped to intelligently face economic downturns. But the various 'traditional' cures for dips in economic activity - increasing government spending, decreasing business tax, slashing government services, 'fixing' interest rates to a very low level, subsidising domestic industries, removing subsidies from industries to re-orient them, subsidising raw materials, subsidising the shift of production bases to low wage-low care countries - no longer work. Why?

Because the game has changed.

Up until now, economists have never had to weight the cost of energy heavily in their models of how economies work. Energy has always been cheap and abundant. The economists tools in an era of cheap energy - 'tweaking' of government policies, taxes, and laws - now have minimal effect. These economic devices are not new energy sources. In an age of astonishing new technologies economists expect 'more investment' in energy technology to substitute for energy shortage.

Lets be clear. Technology is not an energy source. True, both government policy tweaking and technology can help efficiently use existing energy sources, and thus reduce costs, but this effect is marginal in the bigger picture of reducing global supply of cheap energy.

Previous depressions were not limited by energy - they were limited by confidence and government competence. An 'energy constraint' depression is a physical-constraint depression, not a psychological-constraint depression, and is fundamentally different.

Don't look to history for guidance. While this 'limit to energy factor' has never been seen before in the history of modern democratic industrialised nations, its trajectory can at least be broadly understood and predicted. How? By the trajectory of oil, gas, and coal depletion.

But there are many other factors - chiefly climatic, economic and political that could (and probably will) - make nonsense of this guess. These influences are far more difficult to predict and therefore take into account.

Depression in the USA

The USA is the most heavily car dependent nation on earth, has low population densities in cities, relatively rapidly growing population numbers, relatively poor public transport, is coming up to shortages in natural gas for electricity generation, already has a large number of impoverished people, has no saved reserves to pay for social security, has a private credit bubble, has many industries distorted by taxpayer subsidies, has a government living on overseas credit, and is in the unique position of having most of the worlds banks using the USA currency as a default international standard currency of value.

"The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost."

Unabashed comment of former Fed employee Ben S. Bernanke in a speech in 2002 . Half of what he said is true.

Loss of faith in the currency will make it of low value. The backing for the dollar is oil. Oil backing is almost the sole reason banks have faith in the currency.

The dollar has oil backing for two reasons-

1. Historically the feudal Saudi 'royal family' was elevated to power by the USA in return for it accepting only US dollars for oil sales.

2. USA has captured the Iraqi oil fields.

Deep recession in the USA will in theory fairly certainly tip into depression in 20 years time (2025) when light oil production naturally fades to about that of the late 1960's.

Even if the USA invaded Iran, Saudi Arabia, Venezuela and Nigeria and seized their oil for the exclusive use of the USA, almost all the light sweet crude in these countries would be used up by about 2040.

This is, of course, an absurd notion, but it illustrates the point that even expanded theft and sequestration cannot save the most powerful nation on earth from the inevitability of depression.

But we must consider one fundamental factor unique to USA - the dollar is the de facto global reserve currency, and has been since 1973 when banks stopped backing their currency with gold. But, in spite of the huge USA internal economy, the dollar is fundamentally unsound. The world banking system has historically been manipulated by the USA into using the dollar as reserve currency. This has easily been achieved - trading in oil has been in dollars, an arrangement cemented decades ago with the Saudi dictatorship. All countries want to buy oil. All countries must buy USA dollars to pay for oil. In this way, the USA has been able to print money to pay for its budget and trade deficits. It is virtually the only country in the world that has been able to export its domestic inflation. Banks around the world have large accumulations of dollars as a result.

The USA currency can only retain its 'acquired' value so long as oil producing nations insist on dollars as payment for their oil. While USA is regarded as a very, very, good friend indeed of the Saudi regime, it is not well liked in the other major middle eastern countries (and especially Iran and Iraq). Then why does the Middle East support the USA dollar by insisting on payment in the greenback?

In fact, most would slash their dollar holdings - punish USA - tomorrow. But the international oil exchange bourses in New York and London have called the shots on payment for oil until now. Recently, Iran has made some sales directly to adjacent European countries and to India and China, and insisted on payment in euros and other regional currencies. This must worry the presidential/business/military complex in power in USA.

Saudi Arabia has relatively recently repatriated many USA investments back to the kingdom and re-invested in the region. Saudi has re-invigorated its interest in gold. Since the end of World War II, an ounce of gold has fairly constantly been worth 15 barrels of oil. The ratio has been disconnected over the last four years, and an ounce of gold buys only 7 barrels of oil. Whatever the underlaying reason, gold in the bank or oil in the ground may be the best long term stores of value. In the first quarter of 2005, 20% more gold was sold than the same period last year. While Saudi has not yet asked for payment in gold, it has mooted accepting payment for oil in a basket of regional currencies as well as the dollar.

Iran plans to open an international oil trading bourse over the internet in mid 2007. Payment to be in the currency of your choice. Iran already supplies large quantities of oil and gas across the border to Europe.

Russia also trades gas and oil heavily into Europe - around half its production. In 2004, it, too, mooted payment in euros.

Venuezuela, heavily exposed to the USA economy through large oil exports to that market, is looking to diversify its crude oil sales, including selling directly to China.

The trend may be unstoppable. When a certain portion of the world trade in oil is in a mix of currencies (and in gold), with the dollar simply one part of the mix, central banks may become very nervous. They would be negligent if they did not diversify and rebalance their various currency holdings away from heavy overweighting in the USA dollar - and also re-invest in some gold.

Central bank sell downs will tend to drive down the value of the dollar.

The effect could be a cascade - a lower value dollar causes those who have overaccumulated the dollar to quit a large part of their holdings before the value falls even further. This drives the dollar down in a self ratcheting fashion. What is the end result?

A dollar then won't buy as much oil as it did previously. The cost of oil and oil products within USA becomes higher. With the USA having to buy a far greater portion of its oil needs on the international market, it needs to spend more devalued dollars to buy it. But these dollars are largely 'printing press' fictitious dollars backed by USA treasury bonds. With the dollar not attracting a lot of interest, bond yields must be racked up by increasing the interest rate payable on them. Higher interest rates on federal bonds leads to higher interest rates on mortgages.

Higher mortgages leads to homeowners being unable to pay, mortgage defaults, and then higher costs to the federal mortgage guarantee system. All this may happen at a time when stocks are sliding as investor confidence slides. (Some claim that there is evidence the USA government has from time to time recently been 'insider trading' with selected brokers to keep stocks values high and confidence in place. A similar claim is made the USA government has been trading to artificially lower gold prices.) Of course, many small businesses in the service industries and allied discretionary spending would fail as more and more of the family budget goes on higher petrol, gas, electricity, and winter fuel oil costs. These are deeply recessionary conditions.

So the artifice by which the USA has manouvered its currency as the currency of oil trade in order to vastly overspend its productive capacity may ultimately be exposed as based soley on confidence. If confidence is lost, it may fall like a pack of cards.

In this scenario, the USA may slip into a depression suprisingly quickly - far more quickly and dramatically than current base-line conditions would predict. The advent of depression may be sooner in USA than the rest of the industrialised world. But not much sooner. Ultimately, there are no exemptions from depression for any country.

Can the USA prevent the cascade? Yes, it can. It can hold a gun to the head of every major oil producing nation and say "you will only accept US dollars for oil - or else." This may be the only credible explanation for the propoganda demonisation of Iran in january 2006, and again in january 2007. It may be planning a demonstration of power - destruction of key elements of military and domestic infrastructure as a warning of the consequences of non-compliance with the US arrangement for marketing oil.

Iran, in spite of its florid hyperbolous rhetoric, is about as likely to use a nuclear weapon as any other regional state, such as Pakistan or India. that is, even if Iran acquired nuclear weapons, it dare not use them. The result of use of a nuclear weapon by Iran would be an almost instant cremation of the greater part of the population.

In contrast, North Korea, as unstable a country as is possible to find - and quite likely to be crazy enough to use them regardless of consequences - is making nuclear weapons without a murmur from USA. Where a nuclear strike from Iran is extremely unlikely, a much more likely scenario would be for North Korea to be hired by virtually any country or group (with North Korean contacts) as a 'willing agent' to smuggle remote-detonated neutron bombs (made in China or Russia, and either corruptedly obtained or willingly supplied) into USA or west Eurasian cities. If Iran with nuclear missiles might one day be a threat to West Eurasia or USA oil interests, bombing its nuclear facilities to remove real or fictitious weapons research capacity does not remove the threat. Iran - or any country or terrorist group - could contract out the 'hits'.

Nuclear conflagration aside, the stakes are very high for the USA 'dollar based' economic system. It seems increasingly likely that USA will use a show of force to enforce the 'dollars for oil' rule. This will only delay depression in the short run. In the end, geological reality trumps guns. In the medium to long run oil will be priced in other currencies (almost) no matter what the USA does, and countries will increasingly peg their currency to national reserves of gold.

The joker in the pack for this last scenario is climate variation. USA is one of the few countries able to grow surplus grain. In a time of climate-caused grain shortage in an era of a heavily devalued dollar, it would be very profitable to turn grain into oil. A carbohydrate into a hydrocarbon. The reason is that a devalued dollar would make USA grain exports cheap. And an oil-rich region with a burgeoning population can't eat oil.

“Agripower has to be more important than petropower."

Secretary of Agriculture Butz, referring to using food as a weapon, post the first oil shock.

It is possible the USA may be able to make a 'managed landing' of the overvalued USA dollar on the back of its rich black prairie loams. An oil for grain strategy will not prevent depression in the longer run - it might initially delay it. It might change a cliff into a slope.

Depression in industrialised Eurasia and Oceania

These other countries are usually less car dependent, have higher population densities in cities, stabilised populations, usually excellent public transport, are also facing shortages of natural gas for electricity generation, have a smaller number of impoverished people, have some reserves for social security, have a smaller private credit bubble, have more people renting rather than mortgaged, have higher per person savings as a result, have industries distorted by taxpayer subsidies in Eurasia (less so or not at all in industrialised Oceania), have governments owing relatively little or no overseas debt, and whose banks using the USA currency as reserves but which are also weighted toward the euro. The backing for the euro is trade. Trade - financial soundness and prudence of governments - is almost the sole reason banks have faith in the currency. The euro has very little oil backing right now. (But that may be changing.)

Deep recession in many (but not all) industrialised Eurasian and Oceanian countries will in theory also fairly certainly tip into depression in 20 years time (2025) when light oil production naturally fades to about that of the late 1960's. Compact countries such as Switzerland that have already invested heavily in energy efficiency, renewable energy, public transport, and sustainable land use may not experience depression conditions until some years into a broader Eurasian depression. China, as a recently industrialising country, still has most of its population living as low income, poorly educated (or uneducated) peasants on small farms. This rural diaspora provides a 'sponge' to soak up the jobless from the cities - a circumstance unique to China.

In general, the only difference between Eurasia (and Canada) and the United States is that there is a bigger societal and governmental buffer to take the initial impact of depression.

It is extremely unlikely that any Eurasian country - including China - would attempt to seize any significant sized oil fields in another country.

Depression later than 2025 - other factors

Equating the onset of depression solely by the onset of geologically determined fade-off of oil pumping capacity of a reserve known to be finite is simplistic. The 'classic' bell curve will only happen if oil is pumped out as if demand is constant, no matter how high the price.

Obviously, as the oil supply becomes less than the amount the market demands, that oil-dependent market is disrupted. People become unemployed and consume less. People adjust their driving habits. People buy motorbikes and small cars that use less petrol. People stop buying frivolous junk. Cheap plastic junk becomes expensive plastic junk. Businesses fail, and the oil demand of that business becomes zero. At a certain point of economic slow-down, demand falls off. The price of oil falls with it.

Therefore, once recession has bitten deep, slackened demand flattens out the slope of the oil depletion curve.

As a result, oil consumption fall enough to delay depression. For how long? It is impossible to know, because it is measured against a theoretical 'event' - an earlier depression - that didn't happen. But even halving consumption rates will not double the time until depression, as the peak of production and subsequent decline of the mega fields is the major factor in an oil dependent global economy. Most mega fields have either peaked, or will peak in the next few years. Most are already being pressurised, so the 'truth' of the decline is obscured. As a result, at a certain point, most mega fields will decline steeply rather than fade off gracefully. The decline rate may not be 3% or so a year. These mega fields may decline by closer to 13% a year.

Shall we say depression might be staved off by a decade if prolonged deep recession, coupled with massive government investment in coal gasification, conserves petrol globally, and thus oil demand? It is an unreasoned guess. Reduced crude demand from virtuous countries practising intensive conservation might be greedily snapped up and stored by a less virtuous countries. The tragedy of the commons. There is no global regulator to ensure fair share. Or define what 'fair' is. The message for all countries remains - if you don't grab it, another country will. Global oil supplies will not be conserved, they will not be 'eked out' for future generations.

Depression earlier than 2025 - other factors.

US dollar collapse

The USA has sold an enormous numbers of Treasury Bonds - creating a huge expansion of money supply and enormous US government debt. This vast US credit bubble is kept inflated by faith in the dollar, supported by oil denominated in dollars. As USA faces massive oil costs with oil bottlenecks and a hugely oil dependant economy, it is only a matter of time before those holding dollars start nervously watching other dollar debt holders to see who will move to sell first.

First movers will 'capture' the greatest return, as the dollar will initially be relatively strong. Countries with large dollar reserves could quietly quit them in fear of an ultimate US dollar value collapse. This could trigger automated 'sell' orders from currency speculators, creating a 'selling climate' and a fear of being left with the 'hot potato'- in turn leading to a massive dollar sell-down. While this would be very good for US exports, it would remove the USA's main source of government income - sale of US treasury bonds. Pensions and other social security payments would be at risk, but worst of all, either funding for the military would have to be slashed, or medical and education budgets would have to be gutted.

In this scenario, a sudden and dramatic early onset of depression may be largely localised to USA (and probably Japan and China).

Drought and water shortages

Prolonged drought affecting wheat and maize production in USA, Australia and China might cause a grain shortfall sufficient to evaporate surplus supplies from the world market. If Thailand, the worlds major rice exporter, also co-incidentally has a smaller harvest, there could be insufficient grain to feed the Middle East. Food riots in the huge and already disaffected local populations could lead to disruption or damage to major Middle East oil fields, triggering a temporary but dramatic cut in world supply and pushing deep recession into depression in many countries.

Other factors

Some might argue religious fundamentalism might get 'out of hand' in Saudi Arabia, leading to overthrow of the current regime and restrictions on supplies to the west. This is very unlikely, as Saudi Arabia enters into boom times, with hugely increased revenues, historically low government debt, and strong local private sector investment in local business and economic activity.

Others argue war may break out in the Middle East, disrupting supply. This is highly improbable. The Americans have replaced their puppet Saddam Hussein and his thugs with a democratically elected government. That government is now entering close co-operation with Iran, a country that Husseins regime had previously attacked in 1980. American military based in Iraq ensures Saudi Arabia, Kuwait, and the other minor Gulf states are safe from invasion from anyone. While America may destroy Iran's nuclear facilities (via its only reliable arab ally, Israel) it cannot in any sense afford a full-scale invasion of an additional country, no matter how oil-rich; albeit a strike may shore up the dollar system for a time.

Conclusion

High oil prices have already set recessionary conditions in train to greater or lesser extent. (Unemployment, business failure and reduced business investment are the most obvious indicators.)

The most likely scenario is for the deeply indebted USA to raise interest rates by the end of 2008 (or soon after), which is likely to co-incide with a spike in oil prices to $US90 due to pumping constraints.

A combination of increased unemployment flowing from oil-price structural inflation of 10%-20% and mortgage defaults due to unmeetable monthly repayments collapses the credit bubble.

Weakened demand due to recession combines with temporary surges in new sweet crude supply. Oil prices fall, but natural decline in world oil pumping capacity sinks under even a reduced demand by about 2015.

Recession slips into deep recession by somewhere around the end of 2014. (There is a long odds chance the USA dollar will lose its position as the currency of oil and set off a dramatic confidence cascade into full-on depression in USA by 2010.)

Deeply recessionary conditions drag on until conditions slowly slip into depression, some time after 2015 but before 2026.

Climatic, economic or political events in the intervening period may act to hasten or delay the onset of depression.

From about 2026 onward, depression becomes a long drawn out adjustment, an adjustment made easier - but not easy - by strong democracy.

Undemocratic and weakly democratic countries may ultimately fail to adjust, and the population becomes subjected to terrorist violence from thugs and gangsters employed and manipulated by powerful ideologues and demagogues.

Note

The projections for fading oil supply on the 'down' side of the Hubbert curve are based on presentation chart 43 from a Presentation at the Technical University of Clausthal, Germany, by petroleum geologist Colin J. Campbell in december 2000. There are more up-to-date projections, but the 2000 projections are only trivially out of date.

http://www.geologie.tu-clausthal.de/Campbell/lecture.html

One minute I am reading about this Great Depression that shall befall us, and then I am reading this which is talking about 2015 and 2026. Hey, the way things are going it seems to me we may perhaps on longer be around. With things changing so rapidly who the heck can worry about 2025. We have the illegal immigration problem, terrorism, oh, forget it!!

Hi, I'm doing a research abot the American economy throughout the 20th century. Does anyone know a good website for facts and statistics with regards to the dollar value (compared with other countries)?

The 50 states should no longer be united...

Remove the federal government.

Let the continent be self sustatined through trade.

Coastal states trade foreign goods, the midwest produces food.

But how do you stop 300 million Americans clinging to materialism and an image centric society?

Exactly... everyone wants Blu-ray and xbox 360's & iphones without having to pay out of their pocket.

Basically, we just need to get invaded by a communist country... which will probably happen by the country that bought some of our debt.

Our only way out of this in a fast way... is colonizing Iraq, taking ownership of the oil, and starting world war three. Before Iran gets the nuke.

Better yet, let's divide the US into regions. It's impossible to govern a country this big and this diverse anyway. Split it into the Northwest, Southwest, Northeast, Southeast. Then Alaska, and Hawaii, etc are separate. Have Regional Governors, in addition to State Governors.

It would be easier to get a National Healthcare System in place by regions. Perhaps shipping by rail would be more efficient, taxes would work differently.

I feel kinda bad for all those folks living in places where the are required to drive miles to a grocery store, being suckered into that kind of lifestyle.

Mass transit needs an overhaul everywhere aside from large cities. Shuttles that are run by the workplace (for larger companies) are a good idea.

It's a shame that the oil industry tore up all the rail lines in favor of cars way back when. We could sure use them now.

The End Of History

The End Point and The End Game

With the fall of the Soviet Union it was widely believed that we had witness the end of history, the end of the historical war between democracy and Marxism. But with the rise of communist China, we are again faced with the historical question: who will be left standing at the end of history?

This time around it looks like the final battle. And the news from the front isn’t good. Communist China, simply by opening its trade door to the world’s capitalists has pretty much captured the means of production along with the technology and the wealth and so the wherewithal to build up its military strength. Does this mean that Marxism is set to dominate the world? Not quite. It is not the rise of worldwide communism that China has in mind, but “socialism with Chinese characteristics.” It is China that has captured the means of production and it is China that seeks to dominate the world. And they intend to do so not by military dominance, but by waging total economic war. A war we are on the verge of losing. And as we lose it, so goes the world. This is China’s end point and end game.

So, before they succeed, we have to get in the game. Not only do we need a vision that pulls our economy out of recession, we also need one that will win the ideological war. That is, we need an end point and end game of our own.

But first, it is necessary to put China’s end game in perspective. To do so, however, we have to take communist/imperialist China temporarily off the board and view them as just another global player.

To begin we have to go back to 1976. That’s the year the United States began running a continuous and mounting trade deficit (a continuous rise in global unemployment). It began as Japan and Germany rebuilt their economies and emerged as formidable competitors, followed by the Asian tigers and then the Asian tyrannosaurus-rex—China. According to economists, however, this should not be a problem. America's trade deficit would be brought into balance as a weakening dollar gives the U.S. a competitive edge, regardless of their technological and low-wage comparative advantages, and bring our current account into balance. In lay terms this would be called a teeter-totter global economy—an up and down game that keeps the global economy balanced. But some players are unwilling to play. As evidenced by China as it pegged its currency to the dollar. If it had not done so their economy would have stagnated as its exchange rate rose to a point where it lost its competitive edge and the global economy would have lost a significant trading partner.

Now, however, since it has become the factory to the world, it has been pressured to reevaluate the yuan and has modestly relented. But since China has become the factory to the world, the benefits are doubtful. As the yuan strengthens, the costs of their exports rise, which translates into fewer exports, and a rise in domestic unemployment. For us it means they export inflation while we export more dollars. So, pursuing this line of thinking could push the global economy into a recession—the seesaw is broke in the middle.

Then there is this: In the real world our competitors distort the currency markets by purchasing dollars (one aspect of pegging) to keep their currencies competitive that become part of their dollar reserves. To date Japan and China have both stashed a trillion dollars under their mattresses.

And it’s just not here that there is a problem. Japan holds approximately 600 billion dollars in Treasury securities while China holds nearly 400 billion dollars. This is not altruism. The investment angle aside, they are simply pursuing their own self-interest. By investing in government bonds they further prop up the dollar and in so doing protect their economies while allowing the United States to remain a significant export market.

Yet despite all this the dollar remains weak. And so there is a rise in our exports—but not enough to keep our trade deficit from widening. So how long does the U.S. have to sit at the top while others sit meekly at the bottom? That’s the wrong question. The right question is: How much longer will other nations prop up the dollar and our financial house while allowing us to keep bellying up to the pot while putting less in as we continue to export more dollars?

China and Japan are our major competitors and it’s not necessary to go on down the list, the point is they reflect the world at large—a global economy not only out of balance, but unlikely to be balanced. The reason that it has yet to reach a tipping point is that while they shored up their economies by propping up our financial house, we became a nation of rampant speculators and unrestrained shoppers. Hype in the stock markets over dot.com ventures led to a rapid expansion of paper wealth that fueled an economic boom as well as a boon in capital gains taxes that not only contributed significantly to budget surpluses, but had economists forecasting that they would continue far into the future and within ten years our national debt would be zero. It was the age of irrational exuberance. And when the bubble burst, budget surpluses evaporated, fell into deficit, and the economy itself, in 2001, slipped into recession.

Not so much in response, but for disparate reasons, the nation’s fiscal and monetary arsenal was pretty much deployed. Massive tax cuts (mostly for the wealthy) and massive pork barrel spending by a Republican Congress (trading principle for power) and a maximum cut in interest rates, by a sober Federal Reserve, to rock bottom quickly brought the economy out of recession. But rock bottom interest rates quickly led to a housing boom and a frenzy of speculation in the housing markets and a windfall for homeowners who refinanced and cashed out on their inflated equity and went on a spending spree buying SUV,s, remodeling their homes or moving up, buying high end televisions or whatever their hearts desired. But eventually reality checked in as rising prices soared out of reach for prospective buyers and the bubble collapsed.

Now the economy again is slipping—despite a weak dollar and a rise in exports—into recession (this time with no bubbles in sight). So, again, the Fed is pushing interest rates to rock bottom at the same time providing greater liquidity to the financial markets while the President and Congress throws out a stimulus package of rebates for individuals and tax incentives for businesses. But given that America is an upside down nation facing a credit crunch, rising food and oil prices, and in the midst of a severely slumping housing market, they will not have a sustainable effect.

So here the problem isn't simply with China, nations regardless of ideology seek, or attempt to seek, their own self-interest, and in so doing play a dangerous zero-sum game. A game where economists have no viable answers, other than pursuing more trade agreements, as such politicians are at a lost. We are out of the game.

That said, communist China is very much in the game; their end game is to win the zero-sum game. The backbone of Marxism is that capitalism has gone down a path that ultimately leads to its collapse. For the “bourgeoisie cannot exist without constantly revolutionizing the instruments of production, and thereby the whole relations of society… The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere… All established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction becomes a life and death question for all civilized nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones… In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal interdependence of nations… The bourgeoisie, by the rapid improvement of production, by the immensely facilitated means of communication, draws all even the most barbarian nations into civilization… The cheap prices of its commodities are the heavy artillery with which batters down all Chinese walls, with which forces the barbarians’ intensely obstinate hatred of foreigners to capitulate… The bourgeoisie has subjected the country to the rule of towns. Has greatly increased the urban population…It is enough to mention the commercial crises that by their periodical return put on trial, each time more threateningly, the existence of the entire bourgeois society… In these crises there breaks out an epidemic that, in all earlier epochs, would seemed an absurdity—the epidemic of overproduction… society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation had cut off the supply of every means of subsistence, industry and commerce seem to be destroyed; and why? Because there is too much civilization, too much means of subsistence, to much industry, too much commerce… And here it becomes evident that the bourgeoisie is unfit to be the ruling class in society… It is unfit to rule, because it is incompetent to assure an existence to its slave within this slavery, because it cannot help letting him sink into such a state that it has to feed, instead of being fed by him.”

So said, worldwide unemployment reaches a critical mass, and capitalism collapses. As it does, the workers rise en masse, overthrow the existing order, take control of the means of production, and establish a “dictatorship of the proletariat” that oversees the shift from socialism to communism.

Well, as we know, history didn’t go according to Marx. Lenin and Mao became impatient vultures—instead of waiting for the death of capitalism, they became birds of prey, they wanted to kill now. And to achieve the means to their end, command economies that would bury capitalism, they started on their own people.

So today we are faced with communist China (and to some extent Russia—their favorite monkey). And while their end point hasn’t changed, their end game has. Faced with the concrete reality that centrally planned economies have failed, China opted for the capitalist road and in so doing are now in a position to accelerate the collapse of capitalism. And they have targeted the United States as the first domino. While we shipped them our manufacturing jobs, they gave us the trade finger (say unfair trade practices doesn’t quite cut it). They knew full well that their peg was a cannon in their arsenal. So, together with our loss of jobs we are being pushed to the brink.

There is no real surprise here. But there is tremendous anxiety and an acute sense of danger. We are in a recession, a recession that feeds on itself as unemployment begets more unemployment and recession turns into a great depression; as such, we are faced with the very real prospect of economic collapse that precludes any revolution—China has already captured the means of production. Even so, does this mean that Marx was right?

If so, China has played the game well. Opening their door to the world’s capitalists set off a race to the bottom—the constant search for cheaper wages, lower taxes and weaker environmental and other regulations by capitalists who in the end produce a downward spiral in socio-economic conditions in the United States and other industrial countries—as their respective Atlases shrugged and beat feet to China.

The underlying rationalization, other than exploiting a vast and untapped market (that would benefit America), was that as communist China shifted to free markets, with a rising middle class, there would an inexorable shift to democracy. Anyone that believes that today is wearing some serious rose-tinted glasses.

Meanwhile China got a firm grip on the Shruggers’ financial balls, and as they lobbied Washington—don’t offend them, don’t make them squeeze—their hearts and minds soon followed. The appeasement by previous administrations is now firmly locked into the present administration. And looking over the horizon there is no would-be president that even dares to step out on the yellow brick road.

That said, China, in their quest, was never going to risk a nuclear war (and if they did, did they consider the China syndrome. A doomsday scenario where the U.S.’s thirty-five nuclear power plants melt down and spread nuclear radiation around the world to China). They were never going to risk the means of production. Their end game is total economic war. It is The Art of War: “To subdue the enemy without fighting is the acme of skill.” And while its author, Sun Tzu, lived in 6th century B.C. imperialist China, his ideas are alive today. And their skill is still paramount. Fools still rush in—or are they fellow travelers or just anti-America? It’s hard to tell.

But it is easy to see that the President and would-be presidents, other than the occasional complaining about unfair trade practices and meaningless sanctions by Congress, do not want to offend our “ banker”. Better to focus on NAFTA, North Korea, Iraq, Iran, al qaeda, and illegal aliens—anything but saying these are Marxists whose intentions are to “overthrow the existing order.” As such, it seems like we have pretty much surrendered.

Even so, rumor has it that after the Munich games, China will deploy the nuclear option under the guise: it only makes financial sense to shift from the dollar, from treasuries, and invest in a basket of currencies—is this de-pegging, they are only giving us what we want? Whatever, it is only the senseless that will not see this as an overt act of unrestricted warfare against the democracies of the world. And while China threatens foreclosure, we are working against ourselves, as politicians cannot agree on a plan that forestalls home foreclosures that must include mandating a freeze on the resetting of adjustable rate mortgages.

In the meantime Taiwan has become less of an issue and more of a deception. They too joined the race to bottom and invested heavily in China while approximately one million Taiwanese moved to China to live and work. So at home, Taiwan is paying the price, unemployment is becoming an issue. As such they have already been conquered. And we too are about to be conquered.

They’ve have propped up our economy so they could suck out our jobs, our technology (by hook or crook), our resources, until finally they’ve sucked out our last economic breath. And even if they hold on to their dollars and U.S. bonds, it was a good investment. So what if they lose trillions of dollars, they will suffer no casualties. As our economy heads deeper into recession our credibility in the world’s financial markets wanes, especially as the Fed drops interest to rock bottom. So along with a financial meltdown, the dollar crashes and is no longer accepted in the world’s oil markets. Without imported oil, a sound economy, our military becomes a wounded paper tiger—limping its way back home. When that day comes, China will be in control of the world.

As the U.S. economy falls deeper into a depression, the price of raw resources will plummet in the world's commodity markets, notably oil—and those exporting nations will lose significant revenues. To maintain their economies, they are going to have to sell more for less. And as they do, they will have little choice, they will have to turn to China—who will demand long-term contracts. But in the not so long term, China’s voracious consumption, its need to bu