Not your ordinary recession: New Year's outlook for UK

[MaxWahlter]

My last trip to England http://www.powerswitch.org.uk/forum/vie ... highlight=showed a country being hit by the effects of the peak of oil production. My visit over New Year shows a country nose-diving into a new kind of recession: one that has no end.

Some examples:

UK’s refinancing timebomb Sunday Times 4 Jan 2008 – Some £50 billion in loans expiring will need refinancing and the prospects are not good.

Number of business failures set to surge in 2009http://www.bytestart.co.uk/content/news ... 2009.shtml

As the reams of newspaper articles laying out dismal prospects for 2009 appear before us, there is an underlying belief in the recovery will come in a few or at most ten years, and 2008 will fade into memory as a year unremarkable. Not so from the perspective of Oil Peak. We are looking into the tangled guts of a system that has stopped working because the cheap and easy oil that feeds it has peaked.
We are looking over the precipice into the long decline, aptly called the long emergency by James Howard Kunstler.

The logic of this is almost too simple, but not anything you will find explained in the mainstream media.
The system we call business as usual is full of disconnects – think of it like a plumbing system with faulty joints and bends. Despite leakages, the system still delivers water to the end user. However, when pressure drops, the taps run dry and the installation is not only useless, it wastes valuable resources as well.
In this case, money is rather like water. You want to stuff money into the system and see more come out. At least you would want to know you can get basic services like food water, shelter etc. Any business needs a supply of capital and cash to start up and keep going. If you borrow money, you have to be able to pay it back at, say, 4% interest a year.

Standing in front of the bank manager or an inventor you have to convince her that you will be able to expand your business to be able to pay the loan and the interest off in a reasonable time. Multiply this by the number of businesses around and you will see that in order for any money to come in to the system you must be convinced everybody will make more money than they are already doing, to at least pay off the debt from the interest.
When it works, this way of doing things creates jobs, provides an endless array of services and goods and generates tax income to run the civil sector.
When it does not work, you put money and your own time into the system and get very little out.

This is where the connection to oil comes in: look into any business plan of any business and you will find a massive reliance directly or indirectly on fossil fuel. Electricity, the life blood of any office, comes increasingly in the UK from gas fired power stations.
Energy price hikes make everything more expensive, reducing profits and undermining the logic of the business plan and indeed the whole set-up.

From this perspective you can see how we got into the situation we are in. Peak production of cheap oil in late 2005 started a process of price hikes and started to knock holes in the wealth generation machinery. First hit were airlines and transport sector, creating job losses and credit defaults. From there the spiral downward continues. In this context a much larger number of businesses cannot make the business plan work. Trying to kick-start the economy now that oil is cheap will only result in a new wave of price rises as economic activity grows, oil demand increases, the production ceiling hits and the bidding goes up to push oil back up.
The current wave of low prices is merely the receding of the wave of the economic tsunami that will inevitably come back to hit us again.
The current low price of oil means stalled investments in new wells or increased productivity. With 60 of 80 oil producing countries past their peak we cannot expect any increase in economic activity to be long lasting.

What does all this mean for the oil aware denizen in 2009?
Don't be fooled by oil-unaware arguments. True Woolworth’s demise is partly their own doing in trying to sell everything, but there is nothing to say that just because a business is working to day, it will be able to continue as more and more job losses produce more and more unwilling or unable to buy their stuff. No, all business plans are energy reliant and I would say 99% are energy unaware.
You need to become familiar with other economic models. Interest-free banking and cooperatives are two I recommend.
Interest free banking at least shares rewards and risks and is more human.
Cooperatives, especially those involved with community supported agriculture, are designed to provide their owners with economic security and /or basic services at below market prices.

In fact, finding ways to ensure a supply of the basic necessities for all will be a major challenge in 2009. The leader in the Telegraph from Jan 2 expects there will be some people going hungry in the UK during 2009.
The system we live in already has major homelessness and poverty, in my opinion evidence of abject failure.
Oil aware people need to start to speak up outside the confines of discussion forums to send a clear message to politicians and civil servants: the fossil-fuel dependent way of life is on its last legs. Energy and food security for all need to become the top priority. And of course the good side of all this: this means there will be meaningful work for all, we expect to see a kinder, more generous UK, less stress and pollution, more local business and solidarity. The time to transition is now, 2009, while we still can.

[MacG]

Your best piece yet!

(I have followed your writing and can support the statement.)

[DominicJ]

No, just no.
Money is not plumbing system.

We are looking into the tangled guts of a system that has stopped working because the cheap and easy oil that feeds it has peaked.

Why is Dubai coming apart at the seams?
Their oil hasnt peaked.
Cheap and easy credit has gone away, not cheap and easy oil.
The US peaked in the 50's, 50 years on, they arent all living in caves, they're still the worlds dominant power by a long long way


No no no, thats just gibberish

look into any business plan of any business and you will find a massive reliance directly or indirectly on fossil fuel. Electricity, the life blood of any office, comes increasingly in the UK from gas fired power stations.

The only material cost in any office is wages, I know this because my collegue prepares reports for senior management on wages costs and I prepare reports on energy costs, rent, and well, anything except wages.
For a school, wages make up in excess of 90% of ALL costs.

From this perspective you can see how we got into the situation we are in. Peak production of cheap oil in late 2005 started a process of price hikes and started to knock holes in the wealth generation machinery.

Well the dates not bad, generaly speaking, it started in 2001 and went on from there
What is it?
TAXES
http://www.ukpublicspending.co.uk/downc ... e=m&title=

First hit were airlines

Airlines are without doubt the worst ran businesses, governments keep bailing the damned things out one way or another, quite infuriating.

In this context a much larger number of businesses cannot make the business plan work.

Damn straight, Labour costs to a business, even at minimum wages are almost £8 thanks to "employer contributions" to NI.

True Woolworth’s demise is partly their own doing in trying to sell everything

Not really, ASDA and TESCO do tha, woolworths problem was it sold nothing, at no point would someone think, Hmmm, I want X, I'll go to woolies.

there is nothing to say that just because a business is working to day, it will be able to continue as more and more job losses produce more and more unwilling or unable to buy their stuff.

Yep, its called a recession, caused by an unbalanced economy, caused by a credit boom.

Interest free banking at least shares rewards and risks and is more human.

Going to elaborate on that?
If I get no interest, how am I compensated for risk or the time value of my money?

The system we live in already has major homelessness and poverty, in my opinion evidence of abject failure.

But nothing to do with oil, because that was a problem before 2005.


Lets not try and blame everything on oil just yet.

[MacG]

Interest free banking at least shares rewards and risks and is more human.

Going to elaborate on that?
If I get no interest, how am I compensated for risk or the time value of my money?

Why should you be compensated? The real world is constantly falling apart. Why should "money" be safe from natural deterioration?

[DominicJ]

MacG
I didnt say it should, but I'd rather it deteriorated under my mattress than yours.
No offence.

Why would I possibly lend you £100,000, to be paid £10,000 a year for 10 years.
It just doesnt work.

[MacG]

Why would I possibly lend you £100,000, to be paid £10,000 a year for 10 years.
It just doesnt work.

If the alternative was to have the money reduced to £50,000 if you kept them under the mattress... By lending them out, you could preserve them from deterioration.

[DominicJ]

How can that be the alternative?

*****
Edit
*****
The defintion of "money" is an infinatley divisible, transportable, universaly accepted *store of wealth*

If it doesnt store wealth, it shouldnt really be called money.
Which is why, whilst doing the exact opposite, governments claim to be controlling inflation.

[MacG]

How can that be the alternative?

*****
Edit
*****
The defintion of "money" is an infinatley divisible, transportable, universaly accepted *store of wealth*

If it doesnt store wealth, it shouldnt really be called money.
Which is why, whilst doing the exact opposite, governments claim to be controlling inflation.

How can you believe that you can store wealth in symbolic form? When the physical world is in constant decay. Utter stupidity I would say.

Any form of "money" which does not mimic the physical world will fail. You can not ignore the laws of physics for extended periods. Sooner or later such ignorance will have a little interaction with the laws of Darwin, and ignorance will be undone. In pervasive cases, the hosts for unrealistic beliefs will be undone together with the beliefs.

[DominicJ]

Its not my opinion, thats the economics definition.

Although I disagree that there cant be sound money, I would agree that there never will be, governments being what they are.
But, I dont use money as a store of value, I make a point of always owing lots of it, safe in the knowledge that the repayments will be inflated away.

[RenewableCandy]

...I make a point of always owing lots of it, safe in the knowledge that the repayments will be inflated away.

An interesting contrast with most of the rest of the punters here. Do you reckon there's going to be rampant inflation soon, or do you think the newly-created money is just going to offset the deflationary effects of money being credit-crunched out of the system?

[skeptik]

But, I dont use money as a store of value, I make a point of always owing lots of it, safe in the knowledge that the repayments will be inflated away.

Lucky chap. You are also, I would assume, also safe in the knowledge that you will always be able to make the repayments and avoid the bailiffs knock.

The industry in which I used to work is not known for job security, which inclined me to a more Micawberish attitude.

[Vortex]

Idle muse: I wonder if RGR has simply changed his forum ID ...

[happychicken]

Edit

We are looking into the tangled guts of a system that has stopped working because the cheap and easy oil that feeds it has peaked.

Why is Dubai coming apart at the seams?
Their oil hasnt peaked.
Cheap and easy credit has gone away, not cheap and easy oil.
The US peaked in the 50's, 50 years on, they arent all living in caves, they're still the worlds dominant power by a long long way

Dubai has been hit partly because of the global credit crunch/economic downturn but also by the massive sudden fall in the price of oil

No no no, thats just gibberish

Oh no it's not

look into any business plan of any business and you will find a massive reliance directly or indirectly on fossil fuel. Electricity, the life blood of any office, comes increasingly in the UK from gas fired power stations.

The only material cost in any office is wages, I know this because my collegue prepares reports for senior management on wages costs and I prepare reports on energy costs, rent, and well, anything except wages.
For a school, wages make up in excess of 90% of ALL costs.[/quote]

Not so, business plans contain estimates of energy costings, otherwise known as "overheads", just as accountants record these costings in any business's annual accounts. Incidentally, I've just heard a man on Radio 4 from Eastern Europe saying how the gas crisis with Russia is having a detrimental effect on the economy because so many firms, especially engineering ones, rely on cheap energy.

From this perspective you can see how we got into the situation we are in. Peak production of cheap oil in late 2005 started a process of price hikes and started to knock holes in the wealth generation machinery

Well the dates not bad, generaly speaking, it started in 2001 and went on from there
What is it?
TAXES
http://www.ukpublicspending.co.uk/downc ... e=m&title=

First hit were airlines

Airlines are without doubt the worst ran businesses, governments keep bailing the damned things out one way or another, quite infuriating.

Airlines were hit by very high fuel costs - you can't deny that.

edit

Lets not try and blame everything on oil just yet.

I wouldn't blame everything on oil, but it's a very big part of why everything is falling apart.

[PaulS]

Max, I am in more or less complete agreement.
I have produced a similar blog couple of months ago ( http://www.transitionnc.org/?q=node/73 ) aimed at a less PO aware audience, but putting forward similar arguments.

[PaulS]

...I make a point of always owing lots of it, safe in the knowledge that the repayments will be inflated away.

An interesting contrast with most of the rest of the punters here. Do you reckon there's going to be rampant inflation soon, or do you think the newly-created money is just going to offset the deflationary effects of money being credit-crunched out of the system?

I have cleared all my debts, but having debt could be beneficial in certain circumstances, such as steady income (to cover repayments) and high inflation (to degrade the debt). After all that's how most of the baby boomers made money on property.

However, the crucial point is that you need to be very certain that you can continue making repayments - and that may be a problem for an increasing number of people as recession bites and people are laid off. I hope you won't have that problem.