The Oil Drum: Europe

Many argue that suburbia was a terrible idea—a giant waste of land, capital, and culture. I largely agree. But there you have it: suburbia happened, with no refund available. It is a sunk cost—not only the millions of homes, but the vast infrastructure for transportation, employment, governance, and distribution that is fundamentally intertwined with the suburban model. Looking into a future of energy scarcity and economic challenge, it is time for the discussion to shift from “suburbia sucks” to “what are we going to do about it?” Is it possible to build a vibrant, sustainable, and self-sufficient civilization on the framework of existing suburban development? More importantly, is there any viable alternative? This four-part series will take a critical look at suburbia in an environment of peak oil, beginning with this post’s discussion of sunk costs and credit markets as they impact our options.

This is a slightly abridged version of an actual letter from a reader and my answer, regarding a change in career in the light of peak oil. What would you have said? This reader was not from the US. How would advice differ for different parts of the world?

Dear Gail:

I read some of your posts on The Oil Drum, and I wanted to ask you a question. Taking into consideration peak oil, what careers are likely to be better places in the years ahead?

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This is an allegory explaining some of the monetary issues associated with the current financial crisis. It was written by Jason Bradford. Jason was an academic biologist who "retired" at a young age to become a community organizer and learn how to farm with peak oil in mind. He also hosts a biweekly radio show on public radio called The Reality Report.

I have never been a huge follower of Star Trek, but when thinking about the financial beast thrashing about the Borg comes to mind.

"I am Locutus of Borg. Resistance is futile. Your life as it has been is over. From this time forward, you will service us." - Locutus of Borg.

"Strength is irrelevant. Resistance is futile...Your culture will adapt to service ours." -- The Borg.

The Borg is a hive-like hybrid swarm of humanoid species, turned partially robotic. They are distinctly goal oriented towards “assimilation” of all other humanoids and press themselves relentlessly with the creepy mantra “Resistance is futile.”

The money system is eerily Borg-like. Because it structurally requires growth, it works relentlessly to assimilate all forms of capital. The natural consequence is that everything must be for sale. Values of freedom, independence, self-reliance, and even conservation are subservient to the goal of growth—which is really just growth of the financial Borg, not human welfare or the security of a habitable planet.

Despite the first rejection of the Paulson Plan, the effort is ongoing in Washington to push through a plan that is likely to be substantially similar to the first one (as far as I can tell, the only changes will be tax cuts and the inclusion of the renewable energy bill items). Given the overwhelming pressure to "do something", and despite warnings that we are being rushed for no reason into a terrible plan, it is rather unlikely that the final version of the plan is going to be very satisfactory. In any case, the following will hold true irrespective of the outcome of the Paulson Plan.

(Note: This was written for the European Tribune this week-end, ie before the rejection of the plan by Congress, and before the most recent bank bailouts, but its conclusions stand)

• the consequences of the financial crisis are so dire that the lesson here should not be that a bailout is necessary (it is, at this point) - but to acknowledge that the financial sector has the power to hold the rest of the economy to ransom during both good times and bad times and thus that it need to be emasculated so that we never get again to the stage where a bailout is necessary. The lesson is that the financial world cannot behave responsibly, if left to its own devices and thus should not be left to its own devices;
• another is that the main argument to give financial markets a free hand — that they have created so much growth and prosperity — needs to be called for what it is: a lie. Not only the so-called prosperity of the past year was highly unequally shared (see the next point), but it was not even real, as the income and profits of the good years are now dwarfed by the losses of today. Arguments about growth need to be dismissed by a reference to the "full cycle," i.e. the prosperity of the recent past can only be accepted as real if it wasn't a capture of the prosperity of today and the near future. If the forthcoming growth and GDP numbers are dismal, this should be seen as a direct proof that the growth of the past was nothing but, and that the policy prescriptions focused on financial profit are abject failures;

The Financial Times is (rightly) worried:

Banks are not to be trusted. This is not just the view of the public and policymakers, but that of the banks themselves.

And indeed, the most notable thing over the past year has been the general mistrust amongst banks, and their reluctance to lend to one another. This graph shows a direct indicator of the level of defiance between banks:

Via Mish

-- Initially posted on European Tribune, where we've had many good threads on the financial crisis and the bailout.

Paulson, Bernanke Tell Lawmakers Urgent Action Needed on Treasury Plan

WASHINGTON -- U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke urged swift action on a Treasury Department plan to buy illiquid mortgage-linked securities and avoid severe spillover effects on the economy.

Mr. Paulson cautioned lawmakers against letting the plan get bogged down in a debate over unnecessary additions.

"Unnecessary additions" - things like accountability, transparency, making sure that the crisis does not happen again, and making sure that it solves the underlying problem. But nope, no "bogging down"...

Today, the financial markets are struggling with Lehman Brothers' Chapter 11 bankruptcy, AIG's problems, and the sale of Merrill Lynch to Bank of America. There is also the problem of the unwind of the credit-default swaps tied to hundreds of billions of dollars of Fannie and Freddie debt. This thread is intended for folks who want to discuss what is now happening.

Some may be asking how all of this is tied to oil and energy. There are quite a number of relationships:

Talks Continue in Effort to Rescue Lehman

The fate of Lehman Brothers, the beleaguered investment bank, hung in the balance on Sunday as Federal Reserve officials and the leaders of major financial institutions continued to gather in emergency meetings trying to complete a plan to rescue the stricken bank.

The talks took on even greater urgency on Sunday as government officials push for a deal to be completed before the markets open.

After weeks of agony, Lehman's fate appeared sealed by the end of last week, as its stock market value dropped 74% in a few days, after having lost more than 80% since the beginning of the year. That the Fed and Treasury have called an emergency meeting over the week-end ensures that things are over for the bank and it will either be bought over the week-end (with someone taking over its liabilities) or go bankrupt.

Note: This is a cross-posting of Jerome's essay from European Tribune.

This is a guest post from Cameron Leckie of ASPO Australia. He can be contacted at cameron.leckie (AT) aspo-australia.org.au.

Major transportation projects and the requirement for Oil Vulnerability Assessments

Introduction

I live in South East Queensland, a beautiful part of the world, but one with a population expected to grow significantly over the coming decades. Brisbane, the capital of Queensland, had a population of 1.77 million in 2004. This is expected to grow to 2.58 million by 2026 ⁱ. There are a large number of significant infrastructure projects planned, or under construction with the aim of delivering the infrastructure required to support the population growth in South East Queensland.

Unfortunately, despite the Australian Senate’s report into Australia's Future Oil Supply, the Queensland Government having established an Oil Vulnerability Task Force and the Brisbane City Council having established a Climate Change and Energy Task Force, virtually no consideration has been given to the impact that higher oil prices and declining oil production will have on the need for, and the types of infrastructure required to support, a growing population.

This will be to the detriment of the residents of South East Queensland and those who invested in these projects. A case in point is the collapse of the River City Motorway’s Group’s share price over recent months.

One of the more interesting things about this Friday's economic news was the very obvious connection between the unemployment number and oil prices. What links the two is debt, the defining feature of what I have called the Anglo Disease, ie the highly unequal economy whereby the rich and the financial sector (almost the same thing these days) capture most of the income but hide it by providing cheap debt to the middle classes so that they can continue to spend.

Oil has played a fascinating side role in my Anglo Disease series, allowing the debt bubble to go on for much longer than expected. But now, instead, it is accelerating the crash. Let me take you through the whole cycle.

Anglo Disease diaries
Countdown to $200 oil diaries