Latest from the Taskforce | The Peak Oil Group. Discussions about Energy and Our Future. Where we are headed: Peak oil and the financial crisis. Our One-Way Economy Our economy is very much a one way economy--because of its heavy reliance on debt, it needs to grow. It is easy to overlook the importance of debt. Most businesses would not be able to build new factories without debt. Businesses would tend to be much smaller than they are today without debt. In order for our debt-based system to work as planned, the economy needs to grow. In a growing economy, many debtors find that their financial situation has improved by the time it becomes necessary to pay back the loan.
The reverse is true in a shrinking economy. For a business, a declining economy makes capital planning difficult, because one doesn't know whether there will be sufficient demand for a product, or sufficient raw materials for the product, for the full lifetime of capital equipment that is being purchased. In this environment, how does one amortize costs? It is notable that the non-defaulters, by and large, are all hugely successful growth stories. The Oil Drum: Net Energy | Discussions about Energy and Our Future. The Oil Drum: Net Energy | Further Evidence of the Influence of Energy on the U.S. Economy. Posted by David Murphy on April 16, 2009 - 11:11am in The Oil Drum: Net Energy Topic: Economics/Finance Tags: dot-com bubble, economy, energy, eroi guy, finance, housing bubble, oil crisis, original, petroleum expenditures, steve balogh [list all tags] Gail, Jeff Rubin , and now James Hamilton (warning- pdf) of the University of California – San Diego have produced literature correlating either this financial collapse or recessions more generally with peak oil and oil prices.
The take-away message of their work is that oil prices played a fundamental role in causing the current recession and many previous recessions. In this post I, along with Steve Balogh, a fellow researcher here at the EROI Institute at SUNY-ESF, will add to this discourse. In his recent report, James Hamilton states that: With hindsight, it is hard to deny that the price rose too high in July 2008, and that this miscalculation was influenced in part by the flow of investment dollars into commodity futures contracts.