Comments Ron Patterson has made

  • Apocalypse Yes

    Two reasons why Toby Hemenway is wrong and there will be no soft-landing.

    Those who have studied the Great Depression and its causes know it was triggered by a stock market crash. And that crash also had a trigger. In those days it was possible to by stocks on only 10% margin. (The current lower limit is 50% but the SEC often sets it at a higher level.) The market was growing by leaps and bounds and many were getting rich by investing all their funds in the market at 10% margin. This means that every time the market rose by 10% they doubled their money. They would then double up again and quadruple their original investment on the next 10% rise.

    But then as it was bound to do, the market started to fall, but only slightly at first.  But when the market had fell only by about 5%, this triggered thousands of margin calls. When many did not come up with more margin money, their account was closed out, which caused a steep drop in the market, which triggered more margin calls, which in turn caused.....  Well, you get the idea.

    The market caused the loss of fortunes. Few people had any money to invest in anything. This caused a drying up of capital. This triggered massive layoffs in all capital-intensive industries such as the construction industry. This in turn caused a drop in consumption of all goods and services. This in turn caused more layoffs. This in turn caused.....  Well, I hope you get that idea also.

    But because very little stock is purchased on margin these days, and even when it is, the margin requirement I very high, we could never have a crash caused by the same reasons as the 1929 crash. But consider this scenario: Say we are about one to two years beyond the peak. There is no longer any doubt, the world has come to realize that peak oil is here and oil production will drop a little each year.....forever. This will mean that many industries such as aircraft and automobile will suffer a huge drop in sales. This will mean that their stock will crash.

    But it does not stop here. Every industry is, in one way or another, dependent on energy for growth. If their energy supply starts to shrink, it means that instead of the expected growth year after year, they can expect to shrink a little every year. Now since people invest in the market for capital growth, not capital shrinkage, people will start to pull their money out of the equities market. Which will trigger more market losses and cause more people to dump stock which will in turn trigger..... Well is it not obvious? I mean the realization of an ever shrinking energy supply will, sooner or later, trigger the mother of all stock market crashes and all the massive layoffs and hardships that go with it. This stock market crash will make the market crash of 1929 look like a Sunday Picnic, and likewise the depth of the depression that it triggers.

    The second point I would like to point out concerns something that M. King Hubbard often stated. He said: "Were we a rational society, a virtue of which we have rarely been accused, we would husband our oil and gas resources." During the seventies US oil producers tried to keep out cheap imported oil which allowed them to sell more domestic oil. Hubbard sarcastically called this "The drain America first polity."  

    So what happens when countries like Mexico, Russia and many other oil producing nations become totally rational and decide to husband their oil? Would these countries decide not to drain their country first and save it for themselves? Would not Russia realize the very strong position they would be in if they had enough oil to last for many decades while most of the rest of the world suffered?  

    Of course Saudi Arabia, Kuwait, Iran and a few other heavy producers would not be in such a position because they are almost totally dependent on petrodollars to feed their ever-growing populations. These countries have virtually no internal industries and if oil funds dried up they would be flooded with starving, and perhaps rioting hoards. But for many other countries the problem would not be nearly so severe. They would realize that if they are to survive in a collapsing world, they must husband their oil.

    And this drying up of perhaps half the oil on the export market would cause a sudden cliff in the availability of oil for countries like the US, Japan, China and all countries that import more than half their petroleum.

    In the best of all possible worlds, we could have a very slow decline in energy supplies combined with a very slow decline in population with little if energy world conflict. Surely everyone realizes by now that we do not live in such a world. I am predicting that the decline is likely to be far more violent and traumatic than most people, even Peak Oilers, believe.

    Ron Patterson
    Pensacola, Fl.
    On Peak oil: catastrophic or merely unpleasant? posted 3 years, 7 months ago 13 Responses