The world keeps turning and the resources get used up. It’s really quite simple.
Despite that fact, the debates rage over Peak Oil, Peak Food and peak everything else. It’s about as sensible as rearranging deck chairs on the Titanic. So the “experts” continue to debate whether or not resources are running low. But the evidence is pretty clear, at least to this trader.
In the past year, we have seen the oil and agriculture markets explode. And this could be just the beginning of the rally, not the end, as some would have you believe. Personally, I think we are about halfway to the new top for many commodities. That means $200 oil (easily) and gold at $1,500-2,000. The agriculture markets have even further to go, in my opinion.
Key commodities are becoming more and more scarce. So we can expect to see more suffering in the poorest countries first. Then the economic impact will work its way up the food chain (no pun intended).
The facts are fairly grim if we look at them closely. There is going to be less of everything. Yet there will be more people who want those things. Let’s face it – wars have been fought over far less.
In her famous book, On Death and Dying , Elisabeth Kubler-Ross describes the stages of grief:
- Denial: “It can’t be happening”
- Anger: “Why me? It’s not fair”
- Bargaining: “Just let me live to see my children graduate”
- Depression: “I’m so sad, why bother with anything?”
- Acceptance: “It’s going to be OK.”
In my opinion, the American public is going through the stages of grief right now. Rising prices are just a market-based signal that we are losing our economic and resource abundance. As the American dream fades away, it’s like a death in the family.
Right now, I think we are between the stages of denial and anger. Ask yourself these questions: What do you think when you pull up to the fuel pump and have to pay $4 for a gallon of regular gas, or nearly $5 for a gallon of diesel? Or how about when you go to the supermarket and have to pay $4 for a gallon of “store brand” milk, or the same price for a loaf of “store brand” bread? Are your emotions between disbelief and anger? Are you saying to yourself, “Hey, what the heck is going on?” (I’m cleaning it up a bit because this is a family-friendly publication.)
I think folks mistakenly thought prosperity would go on forever.
Dinner is always fun until the waiter brings the check. Or as my colleague Byron King once said, “It’s easy to look rich as long as you don’t ever pay the bills.”
No sector has recently hit Americans in the wallet harder than energy. But even with those dramatic price increases, major changes are still not happening. We have seen a very small decrease in gasoline usage – only about 1% or so.
But while some travel may be down as costs have gone up, the numbers are not really dramatic. No, I am not pointing fingers. I live here too. If I looked at my own lifestyle, I couldn’t say that I am making radical adjustments, either.
We still like to drive our big SUVs. We still drive alone to work. Most people rarely take public transportation (if there is any). And we love to run our air conditioners full blast while watching the documentaries on global warming and dying polar bears on our 62-inch plasma TVs.
Yes, we like to grumble when we fill up those big SUVs, mostly because it’s easier to complain than make the tough changes that are needed. We feel entitled to keep living as we do. Hey, after all, we’ve earned it. Right?
Rather than make difficult choices, we are in that denial stage and buy the line from the government and media that all is well.
The facts and the fiction often get mixed up when discussing the issue of “Peak Everything.” Take the surging price of crude oil. Some people (including a lot of politicians) want to blame the traders and speculators. Other people blame farmers and corn-based ethanol. A lot of people blame OPEC. The list of culprits goes on ad infinitum.
The fact remains that it’s not just one reason or another that we are in this energy disaster; it’s actually all of these reasons and others. It’s a culmination of many years of poor energy policy, short-sighted planning (if you can even call it planning) and an overdose of arrogance that only superpowers can have.
It’s like a football team saying, “We’re No. 1 and will always be that way.” So the team stops training hard. Players quit working out and coming to practice. The coaches just relax and forget about recruiting or developing new talent. Nobody designs new plays or bothers to scout the opponents to see what they are up to. And then the team expects to go out into the world and bring home the trophy every year. “Hey, we deserve it. Right?”
Or go back to the analogy of the Titanic. The ship was state-of-the art. It was not “supposed” to be able to sink. But now as the water rushes in and the ship is dropping lower and lower into the sea, the cold water is hitting us all in the face. Now our lawmakers are scrambling to plug the holes, and it’s not working. The smart people (or maybe they were just lucky) are already in the lifeboats.
Only time will tell if the United States can actually move into the acceptance stage. But in the meantime, commodities will continue to dwindle.
Kevin Kerr
for The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Related Articles:
- Supply of Conventional Crude Oil is Very Close to its Peak
- Peak Oil: What’s Next
- Peak Oil: Supply Data Doesn’t Lie
- Peak Oil – The Risks
- Peak Oil – The Rewards
About the Author
Kevin Kerr's unparalleled expertise in futures and commodities has made him a regular contributor to news outlets like CNN fn, CNBC and CBS Marketwatch, where he's been quoted in over 500 articles. Now, as a contributing editor to Outstanding Investments, he uses his extensive knowledge and connections to uncover blockbuster natural resource investments.
Comment by Zeev Reuteman on 4 June 2008:
This is an insightful analysis with a pityless and cold look at the real situation.
You forgot to tell us all that the economy we are used to live by will also collapse and that we will have to reconfigure the whole of our lives. Wall St. brokers, computer and petroleum engineers, stock market analysts, economists, high-tech gurus, plastic experts etc. will have to learn some other trade.
The world as we know it will crumble under the greatest crisis of all: the incoming financial crisis. No economy can survive oil depletion, because only now we realize that economists never considered a very important variable which today turned up to be determinant: cheap energy.
Unlimited growth was never sustainable.
Comment by FARfetched on 5 June 2008:
Not everyone is sitting back & watching. I was commuting in a small car that gets 40mpg for a long time, but now have switched to a motorcycle that gets 62mpg. I also work at home once a week (as I'm doing today). I make most of the bread we eat (and bought about 40lb of flour on sale a while back, but unfortunately it'll be gone in less than a year), and my in-laws nearby are farmers; we don't buy much beef or chicken, and they grow a lot of our produce in gardens.
Good point about poor/no planning. The "free market" is very good at *reacting* to events, but what we need now is *proactive* planning… and frankly, the markets suck at that. Futures trading is the closest it gets, and that doesn't do anything to signal the need for fixing things *now*. Continued, continuous growth is the foundation of the market religion, and it looks like we've run out of room to grow: we've outsourced most of our jobs, run through all the easy oil, made passenger vehicles as large as possible, and overshot on home loans and other forms of debt. I'm writing a speculative fiction novel, "FAR Future," based on a slightly optimistic outlook on how things could be five years from now and beyond. It's available for reading on my blog, the 1/3 or so that's been written anyway.
Comment by Stu on 24 March 2009:
Well my family and I all know about peak oil, I've studied global oil production for a while and it is definately shrinking, since 2005, propped up only be tar sands, gas condensate, coal to liquids etc etc. If you take out what those alternative use up in energy to produce, the total net energy is on the decline even though in 2008 all liquids was higher then 2005. There is less energy available for our use, because more if it is going to extract energy.
I'm building solar panels, and a wind turbine, soon buying a property in the country, growing food, wood stove, wood heater, dam and water tanks. My solar panels and wind turbine and my wood fired boiler with mini steam engine will give us all the power we will ever need. I'm hoarding everything, spare parts, pipe, scrap metal, batteries, plastic bottles, paper, you name it, books on every aspect of sustainable living. I figure we can make it through the die off, and my kids and even my grandkids will be able to have power for lights, refrigeration etc.......but in the end......it's all to get through the adjustment period..........we are heading back to the 1850s life....the human race I mean......I figure thats about the era where humanity is sustainable at a population of about 1.5 billion and a lifestyle that can be sustained.
Never again will the human race be able to rise to such unsustainable practices.......the resources just won't be there to make it possible.....ever.
Comment by Bazza on 11 August 2010:
A very well written article that outlines problems that politicians appear to be ignoring no matter where they are from.
I would like to make a point about the comment from Stu.
I understand his response to the world situation but I believe that electricity is one item that in the long term we can do without. In the future it will be our ability to provide shelter and food for ourselves and families and this will be done with the use of manual labour. Several hundred years ago and indeed in some places in the world today communities of about 30 families are better suited to survive than many of us would be in a one family situation regardless of what possessions we have. In a community you are able to have people who would, as part of their contribution to that community, be farmers, firewood collectors, hunters, butchers, builders, cooks, teachers, boot makers, weavers etcetera.
We live on acreage and have a large vegetable garden and an orchard, we keep poultry as well as some sheep. Our electricity is derived from our solar panels and a generator. We probably live a more self sufficient lifestyle than many other people but we cannot do it alone. We could not survive for any long period of time without having inputs from many other members in the community.
Although there are just the two of us it is a full time job for one person to grow the cultivate the ground, sow the seed, weed, water, keep predators under control, harvest the vegetables, save the seed, prune the fruit trees and grape vines, build new or repair chicken houses, repair and maintain fencing, slaughtering sheep and poultry, get their feed, pump water, repair or replace hose lines, get firewood and the list goes on. My wife has also has a list of daily tasks, cooking, washing, cleaning, collecting eggs, preserving fruits and making jams and fruit juices, grinding grain and baking bread and cakes and the list goes on.
In all of what we do here if we had to choose one item we could do without it would be electricity. At the present our two main reasons for having electricity are for refrigeration and to run the washing machine. Refrigeration is used in the main to keep dairy products, meat and produce from the garden and orchard. When the lights go out dairy products will no longer be available and if I alter they way I grow some of the vegetable crops we would not have the excesses to store. There are a number of manually operated washing machines on the market and although they would consume more time to operate it could be done.
Basically what I am saying is that electricity is not necessary for us to grow or cook our food, heat our water, warm our house, repair or maintain our buildings or fences.
Any available energy would be better utilised in cultivating crops.
The one item we do not grow is grain but I will attempt this in the next couple of years.
I like Stu's comment about books. We have an excellent library as I purchase most of my books second hand as most people are getting rid of them because everything these days is on the internet. Not sure what people will read when the lights go out.
If anybody is serious about surviving the lights going out they should already be living where they believe they have a good chance of doing so.
Comment by Luis Carlos Zardo on 10 November 2010:
Well, many of the above mentioned issues can be addressed with an EASY choice, just by not having any kids.
Why think about what can be done to feed the three or four additional billion people in 2030 if we can solve this by just not letting them born at all?
why people keep overlooking the easy solutions?
Comment by Biker on 10 November 2010:
Something funny happenin' here, fellas. Suddenly we have a raft of posts all referenced back to 2008 comments. Let's do the time warp again(?)~