1. Energy supply/demand fundamentals have worsened to the point that it now appears $200 a barrel by the end of the decade is entirely probable: demise of oil, diminishing control of oil by the US, and declining production quotas.
2. The technology crash of the 1990s came close to destroying the economy. The fed acted as the lender of last resort infusion massive amounts of liquidity into the system. Foreign investment from Japan helped created a mountain of consumer credit. The trade deficit increased. Japan and China poured trillions of dollars into US treasuries. “Empire of Debt” , stated, Ben Bernanke's global cooperation - sacrificed solvency of American consumers through lower interest rates and tax cuts enticing debt based consumption of Japanese products. In return, Japan had to help hold down US interest rates by buying up dollars and dollar-denominated assets, notably U.S Treasury Bonds. Richard Duncan in his book “Dollar Demise” said, the Japanese create 35 trillion yen in 15 months, to start buying dollars. Buying dollars drove down the value of the yen keeping exports cheap and volume high. There are three possible reactions to the mountain of US debt, one being a crisis of confidence, another, the drowning of the consumer, and last, the slow leak in the private/equity returns. US Treasury bond rates must remain attractive. Lose of appetite: Bond investors feared Chinese foreign investment may be losing their appetite for US treasuries forcing a sell off and driving up the Bond yield. Higher yield means increased cost for consumers and businesses to borrow money. The higher yields will dampen an already slumped housing market.
3. Stock bubble: “Many risked more money than they had by buying stocks on margin or with other forms of borrowed cash”. The buying frenzy created upward price pressure. When the bubble burst, the result was financial suffering and loss on the scale bigger than than anything since the great depression, NASDAQ fell from 5,000 points to 1,000 and trillions of dollars of wealth lost. The fed responded by lowering rates, manufacturers offer zero percent financing, a house buying boom emerged, consumers were spoon fed credit. “Empire of Debt” - 2004 Report card time: New Borrowing by the Fed=$400 billion+, New Borrowing by Private Households=$1 trillion+, Consumer Credit per Capita=$8k, Credit Card debt per Household=$7k, Commercial and Industrial loans= $700 billion, Individual loans= $1K, U.S Corporate debt=$2.5 trillion+, State and Local debt=$1.6 trillion+, Total financed Auto loan=$25 trillion, Federal student loan=$1.4 trilion. Corporations borrow money and the unemployment rate remained low, Americans kept the faith: kept their jobs, increased productivity, enjoyed real estate appreciation, and accumulated massive debt. Banks played the confidence game perfectly and subprime loans allowed 70 percent home ownership.
4. Computer technology peaked just as peoples expectations for the technology seemed to boom. Intel Stock prices dropped like a rock and the darling growth stock stagnated, threats of layoffs announced, and sells down.
5. Collision Course: 1. The price of oil has been the most important leading indicator of both the US economy and the stock market. When the price of oil double in a twelve month period of time – stock prices decline in a range between -27 percent and 4 percent. On the other hand, if oil prices declined over a twelve-month period, stocks returned from -1 percent to +30 percent. Using the formula from 1973 – 2000 and buying and selling on the year-over-year using 80 percent and 20 percent, a 20k investment would have increased 70 times. 2. Over the past 30 years America is losing control over its energy supply. Oil production by non-OPEC nations appears to reach its maximum level and may in fact have begun to decline. 3. Global demand for oil has been increasing by 1.5 and 2 million barrels a day. In 2006, 86 million bpd of oil was consumed by the world. Saudi Arabia for the last 20 years has been unable to increase production capacity. Capacity is being distribute to fields all over of the world. Declining oil fields (2007-2010 daily oil production in mil bar): Ghawar (5.6 to 5.0), Cantarell (1.7 to 1.2), Sonatrach (1.1 to 0.9), Daqing Fields (.8 to .7), Ahwaz Asmaru (.6 to .5) Increasing fields: Burgan (1.2 to 1.3), Safaniyah (1.2 to 1.3), Azeri (.6 to 1.2), Bu Hasa (.5 to .7), Ku-Maloob-Zaap (.5 to .7), Northern Fields (.5 to .8), Upper Zakum (.5 to .6) India is created the world's largest refiner. Oil production increases will be in the Caspian sea, Kuwait, and Iraq and refined in India. Peak oil does not seem to be a problem in the next three years.
6. “Collapse of complex societies”, argues that the main reason complex societies collapse is that complexity-like other human endeavors-eventually suffers from diminishing returns. As long as energy is plentiful, a society can invest in more complexity. “Collapse”, argues that civilizations survive crisis as leaders make correct decisions in time.
7. Societies are not destined to collapse. Energy hungry countries must turn to new energy sources. Energy sources that are so plentiful, they are free.