Although projecting the future of the global economy and society is a very hard subject, I have been trying to construct a high probability timeline on the future of what I consider our new post Lehman ‘late-industrialism’ era of industrial civilisation.
If you have analysis the economic, geopolitical and environmental trends the last few decades, it doesn’t take a genius to work out that by the middle of the 00s, conventional global oil production had peaked, the massive monetary expansion of the Federal Reserve was blowing inflationary bubbles which would eventually pop, with hugely damaging affects on the solvency of the globalised banking system, the global economy and the fiscal health of the major economic powers.
However, just because the long term trends are clearly unsustainable, damaging and almost certain to lead to disaster, does not mean in the short term that thing can improve. In other words, a long term secular trend (decline) is subdivided by short-term cyclical recoveries.
Trying to map a reasonably accurate timeline for the coming decades, I would argue the following.
Following the near-collapse of the global economy in late 2008, here’s the good news, we have past the first systemic test (for the moment) and avoided a immediate implosion of industrialised civilisation following the global peak of conventional oil production. We are now entering into a period of cyclical recovery in the global economy, driven mainly by a massive expansion of the monetary base.
It is one of those laws of economics that for a while, the inflationary impact of this gigantic expansion of the money supply will lead to a revival of economic activity through the expansion of asset bubbles – leading to a recovery in real economic activity. For example, the inflation of the housing market led to people withdrawing equity to spend on new kitchens (pumping money into builders etc which went on to spend on bars/pubs – money from the printing presses leaked into the ‘real’ economy).
The Fed among others is trying to do the same thing now, each time they try this inflationary trick, the more printing money is needed to sustain a ever shorter recovery. But, as you are all aware, QE2 is being planned, as we speak, and it will drive, for a short-term, a recovery in the global economy.
On this basis, I project an economic recovery (albeit choppy) going into 2015, combined with higher inflation and a creeping rise in the interest rate. Global oil production (conventional and unconventional) will roughly maintain its plateau until around the middle of the decade, which along with conservation, substitution of cheap LNG production and a potential slowdown of Chinas economy in 2012 (due to bad debts) will lead to reduced demand for China-led commodities which ensure that supply and demand in oil, copper and other key resources will roughly maintain its plateau balance going into 2015/16.
Geopolitically, the world situation will remain stable during this coming five year period of cyclical recovery in the context of a long-term secular trend of civilizational decline, although localised flare-ups are possible, they will be contained and will not have any serious impact of either global fossil-fuel production or the global economy.
The trick-down affect of monetary expansion, fuelling an eventual economic expansion in Main Street will lead to a energy crisis, for a permanent slope in oil production after 2015 impacting surging global demand. This will lead to the second oil shock (and related food spike) in 2016, as projected by Deutsche Bank.
In a nutshell: The oil industry chronically under invests in finding new supplies, exemplified both by Big Oil’s recent love of share buybacks and under-investment by big oil-producing nations. That spells a looming supply crunch.
That will send oil to $175 a barrel by 2016—
http://blogs.wsj.com/environmentalcapit ... bank-says/
The world, still burdened by massive sovereign debt in the developed world, will face a second systemic challenge to the global economy. At this point, either the laws of economics will force a drastic reduction of demand for oil (sending prices down) or the damage to the global economy will be so severe that it will lead to a cascading collapse of the world system. Ludwig is adamant that this oil shock will lead to the collapse of the system; I think that the probability is more of the Deutsche- Bank style rapid transition away from oil led by the United States.
Deutsche Bank notes:
US demand is the key. It is the last market-priced, oil inefficient, major oil consumer. We believe Obama’s environmental agenda, the bankruptcy of the US auto industry, the war in Iraq, and global oil supply challenges have dovetailed to spell the end of the oil era.
The big driver? The coming-of-age of electric and hybrid vehicles, which promise massive fuel-economy gains for short-hop commuting but which so far have not been economic.
Deutsche Bank expects the electric car to become a truly “disruptive technology” which takes off around the world, sending demand for gasoline into an “inexorable and accelerating decline.”
The oil spike of 2016 will herald the end of the post-Lehman cyclical recovery of the global economy and the deflationary impact of both significant demand destruction in the United States and the resurfacing of the sovereign debt crisis will lead to an extremely tough period for the world. There will almost certainly be accelerated QE by the central banks in the developed world (increasingly becoming a major buyer of their government bonds) and to fight the deflationary impact of the short-term collapse in commodity prices.
In some of the weaker states, the shock will be too much, and places like Greece could see a period of social unrest, government takeovers of the banks and accelerated monetisation of their sovereign bonds to avoid a default which would shake the global economy to its knees. The only room for optimism is of the growing commercialization of conservation technologies, including a new generation of renewable, the emergence of the electric car, a whole new range of highly energy efficient products as well as higher yielding food strains which mitigate the declining global production of oil (and oil based products critical to the agricultural system).
The 2016- 2020 period will be a cyclical downward period in which the trends in increasingly de-middle classes of the Western world increases, the sovereign fiscal crisis in the West worsens and the balance of global power shifts ever further to Asia versus the declining West. Geopolitically, this period will be the era when the militaries of the emerging industrial powers start to come into their own and the fiscal crisis in the United States starts to impact on the military strength of the Pentagon. Throughout the world, emerging regional players start to flex their muscles, geopolitical tensions rise but global peace is maintained. Economically, the ever increasing proportion of the Western economy devoted to paying debt (rather than investing in a post-oil future) accelerates (and only a massive expansion of monetisation hides the sheer grimness of the situation) with the impact of a gold price which starts to skyrocket by the end of the decade as faith in government bond mkts starts to dry up.
Peace always has been and always will be an intermittent flash of light in a dark history of warfare, violence, and destruction
