Financial Crisis

DominicJ · Post by **DominicJ** » 03 Jan 2009, 10:52

The current crisis was caused because interest rates were held below monetary inflation for close to a decade.

Thats it.

China/India/land bubble/sub prime ect are symptoms and multipliers of the disaster, but there is a single cause.
Monetary Inflation.

jomtones · Post by **jomtones** » 03 Jan 2009, 11:01

Wow, thanks for the info everyone...

happychicken, I had a look at Chris Martensons' course but it was all a bit over my head. Is there a page in it that directly ties oil price spikes to recession?

Dominic - if so then why the oil price spikes right in front of most recessions?

Billhook - seems Rubin reckons low oil prices will bring the market to rally - and there's a delay of a good few months before it works, so we'll probably be looking at a recovery of sorts by the end of '09, followed by another price spike, and so forth, zig-zagging into the abyss.

Tess- thanks for the analysis, great stuff!

happychicken · Post by **happychicken** » 03 Jan 2009, 11:13

Hi Jom, it's worth looking at the whole course some time if you have time - it discusses how money is created, exponential growth, inflation, debt etc etc.

The bits to do specifically with oil are in chapter 17 (a,b &c)

Billhook · Post by **Billhook** » 03 Jan 2009, 11:24

Jom -

the declining zig-zag looks logical as a projection of growth levels,
but only if the fact of crushed oil prices forms a sufficient stimulus for large scale investment -

the fact of increasing recognition that the low oil price will evaporate once investment picks up
would appear to act against the uplift part of the cycle.

If we were to go through say three such zig-zags,
would investors have any remaining faith in crushed oil prices meaning it is safe to start investing again ?

This of course presumes that we cannot simply print the stable money that treasuries' economic stimulus would require,
(which may perhaps have exceptions where that paper is put into productive sustainable resource development).

Regards,

Billhook

happychicken · Post by **happychicken** » 03 Jan 2009, 11:40

DominicJ wrote:The current crisis was caused because interest rates were held below monetary inflation for close to a decade.

Thats it.

China/India/land bubble/sub prime ect are symptoms and multipliers of the disaster, but there is a single cause.
Monetary Inflation.

Personally, I think this is oversimplifying things. To quote Chris Martenson: -

"What if our exponentially based economic and monetary systems rather than being a sophisticated culmination of human evolution were just an artifact of oil? What if our rich societal complexity and our trillions of dollars of wealth and debt simply are the human expression of surplus energy pumped from the ground?"

Looking at this bigger picture makes a lot of sense to me anyway.

DominicJ · Post by **DominicJ** » 03 Jan 2009, 11:59

Dominic - if so then why the oil price spikes right in front of most recessions?

Because of inflation.
Monetary growth is booming by about 15% Per annum.
Ecominc Growth is about 3% per annum
Interest rates have also been about 3% per annum.

That leaves an inflation figure of about 9%.

Oil prices spiked because there was more money chasing the same amount of oil.
Now money supplies are deflating, monetary deflation (they are when adjusted for velocity of money anyway) prices are crashing.

Personally, I think this is oversimplifying things. To quote Chris Martenson: -

Each to his own but

What if our exponentially based economic and monetary systems rather than being a sophisticated culmination of human evolution were just an artifact of oil?

Economics predates oil,

What if our rich societal complexity and our trillions of dollars of wealth and debt simply are the human expression of surplus energy pumped from the ground?"

What if pigs could fly?

Looking at this bigger picture makes a lot of sense to me anyway.

IU fear from what you have quoted it involves "Zeitgeist the movie" and secret conspiracies involving some poor bastards called Rothschild.

The "bigger picture" is quite simple.
China and India doubled the worlds workforce, halving the cost of labour.
Rather than face price disinflation, a fall of prices, which is an immediate political problem, governments around the world opted for monetary inflation instead, which is a future political problem.
They accomplished this setting interest rates to maintain stable prices in consumer goods, and ignoring the problems caused by monetary inflation, like the land boom and gold.

Thats it, there is no ponzi scheme nacked by ever increasing debt mountains and input energy inherent in the system, it was caused because it was politicaly convenient.

oilslick · Post by **oilslick** » 03 Jan 2009, 12:08

jcw wrote:
oilslick wrote:Given the collapse in oil prices due to removal of the huge amount of debt supplied by the big brokers I would think it's the other way around. Oil rocketed because all that money was looking for the next bubble. It was all going down the pan long before oil got over $100.

The way I see it oil is just another factor amongst many. I certainly wouldn't lay the blame for the credit crunch at the door of peak oil.
The USA went into recession in late '07.

That's now official.

I agree that oil is not the only factor, but high oil prices are probably the biggest single factor.

Financial Ponzi schemes are in their nature not connected with reality, which makes the timing of the tops of financial manias nigh on impossible - unless physical reality intervenes.

I love PowerSwitch, it's great. But there's definitely a leaning towards blaming EVERYTHING on oil.

There were so many factors in this you cannot remotely looking at blaming one piece of the jigsaw for the whole mess. You need to look at the design of the jigsaw - ie, how risk was viewed and how debt was easily available. Look at how the amount of leverage banks and brokers took on - how does that relate back to oil, other than the money they were borrowing got put into oil / grain / every other commodity. There's no doubt the super-high oil price had a big effect and had that happened without everything else going on it probably would have caused its own mini-recession.

This recession/depression was caused by the debt bubble being taken as far as it humanly could, those pumping it realising something looked wrong, gradually being more cautious to start with and then suddenly everyone realises it's totally screwed and the whole things goes pear-shaped pretty much instantly. Since then it's been governments keeping things alive.

Edit: Just to add, without the debt taken on for the last 6 or 7 years we would have been in recession every year. So now it's pay back time - if the debt amounted to 4 or 5% growth every year, that's a long way back to reality. Oil or no oil, it had to end some time - it happened to end in 2007.

Papillon · Post by **Papillon** » 03 Jan 2009, 13:58

jomtones wrote:Any thoughts on the Financial Crisis being CAUSED by the recent oil price spike?

Any doubts you mean?

Well, my take on it anyway, is it wouldn't be so bad if it wasn't for the massive debt bubble, but it wouldn't have started if it wasn't for high oil prices causing enough inflation for small business to go under, new small initiatives being put on hold, and as a result (amongst other things) peopledefaulting on their mortgages.

Thanks for all the fascinating links on this thread people.

ziggy12345 · Post by **ziggy12345** » 04 Jan 2009, 06:55

"What if our exponentially based economic and monetary systems rather than being a sophisticated culmination of human evolution were just an artifact of oil? What if our rich societal complexity and our trillions of dollars of wealth and debt simply are the human expression of surplus energy pumped from the ground?..

Yes I agree with this statement. Weath is a function of energy in a system and a collapse of the financial system is a result of the reduction of this energy supply. This principle is fundamental to the theory of Peak Oil. By looking at the worlds financial system and its current problem is not looking at the big picture. Energy in all its forms feeds the worlds financial markets so isiolating it and trying to figure out what is wrong without looking at the driving force is incorrect.

I see we have 2 scenarios. One is where the financial system broke down and caused the redcution of use of energy and so re enforcing the problem. Or there is a real shortage of energy supplying the system so the system reacted accordingly.

If its just a financial problem then when there really is an energy shortage the resulting crisis will make the current one feel like heaven.

oilslick · Post by **oilslick** » 04 Jan 2009, 07:36

Wow...it's almost scary, sort of religion-like in the way people here can only reference everything back to oil / energy!

People / computers created too much imaginary money based on debt (ie, people's ability to work in the future). They realised that people couldn't do all that work and now the system is broken.

Energy's in there somewhere but so are many other things. Get a grip!

jomtones · Post by **jomtones** » 04 Jan 2009, 13:07

Personally it looks to me like a very unstable system (already failing) was given a good tip over the edge by the high oil prices, no?

I mean, a 500% rise in the price of a commodity that's basically like oxygen to the economy is not going to happen without some effect, right?

I like Tess' take on it:

My thinking is that the oil price did 'trigger' the recession in the sense that the oil price was the brake that prevented the economy expanding fast enough to pay back the debts which had been taken on.

PaulS · Post by **PaulS** » 04 Jan 2009, 13:53

Spot on Tess and Billhook. My thoughts exactly.

Everyone in politics, media and the experts keep telling us that, sooner or later, the recession will end and growth will resume.

I should think that either
a) recession ends, but as soon as it does, oil price will shoot up and kill it off
or
b) the gradual reduction in world production of oil will cross with the current reduced consumption (only 0.5% down so far btw) and induce a depression - worse, start of the Decline era.

I have published a blog on this: http://www.transitionnc.org/?q=node/73
and sent a few letters to various newspapers on the subjuct. Only the Daily Mail printed it, as far as I know (letter of the week, no less: http://www.transitionnc.org/?q=node/53/177#comment-177

jomtones · Post by **jomtones** » 04 Jan 2009, 14:39

Nicely put Paul, and well done for getting it in the Daily Mail! Strange that only they should publish it... worries me also that the BNP is the only local party with a policy on Peak Oil :/

By the way is your blog published anywhere I can subscribe to it?

JohnB · Post by **JohnB** » 04 Jan 2009, 15:12

Thanks Paul. I was feeling quite depressed over Christmas, but was starting to feel better until I read your posts

happychicken · Post by **happychicken** » 04 Jan 2009, 19:15

oilslick wrote:Wow...it's almost scary, sort of religion-like in the way people here can only reference everything back to oil / energy!

People / computers created too much imaginary money based on debt (ie, people's ability to work in the future). They realised that people couldn't do all that work and now the system is broken.

Energy's in there somewhere but so are many other things. Get a grip!

Ha ha, and I thought this was a peak oil forum

No, seriously. What allowed that imaginary money based debt driven economy to thrive? Cheap energy (oil, gas, coal) in my opinion.

What happened when the oil started to get very expensive? it all came collapsing down like a house of cards.

Call it peak oil, peak cheap oil, or whatever you like, but there does seem to have been a temporal relationship between the massively inflated oil price in the summer and the subsequent economic collapse.

I like Richard Heinberg's idea of "The perfect Storm" - see his youtube video on the subject

Financial Crisis

Re: Financial Crisis