Now that there are no elections grabbing my attention I’ve begun casting the net a bit wider as I look for things to read about. Recently two things have caught my attention, one is an interesting tirade from a US banking executive, he predicts that US credit card defaults will lead to another wave of financial instability. And the other was Clusterfuck Nation, the blog of Jim Kunstler, which I found in lemmiwinks’ sidebar. More than ever, I think that we are at the beginning of a massive shift in not just our global economy, but our very way of life.
The first article reinforced my suspicion that we are a long way from seeing the end of this economic downturn, the seeds have been sown for a catastrophic meltdown and harvest time has come. It seems amazing that in February economists were talking about how the worst of the ‘credit crunch’ was over, only for the CDO mess to eliminate billions of dollars of wealth, based on a sub-prime mortgage market that in hindsight was destined to fail.
The US government has looked for ways to prop up the financial industry, with the $700 Billion treasury cash injection grabbing most of the headlines, despite only representing a part of what has actually been spent. At the same time, Detroit’s car manufacturers are being dragged over the coals in order to have their request for assistance heard. It reeks of class warfare, merchant bankers who have effectively been doing nothing more than gambling with other people’s money are bailed out unconditionally, while millions of blue collar jobs are on the line as the CEOs of these, admittedly poorly run, companies are made to grovel.
We have been finding artificial means of enabling consumption, most recently through robbing the equity in our homes, while simultaneously reducing the wages and conditions of most people. It couldn’t last. Now that house prices have tumbled in the US and the UK people are scrambling to find ways to not only overcome the negative equity in their homes, but also to maintain all of the other expenses that they felt safe racking up during the housing bubble.
I remember the first few large ticket items that I bought on credit were from Harvey Norman, you needed 1/3rd deposit and paid a fixed rate of interest. Now they always push you to the GE supplied “pay nothing/ owe heaps” finance instead, which is much more likely to to cause financial difficulty to people. One of the worst elements of these credit providers is that during the interest free period of your loan they have as little interaction with you as possible, no monthly reminders to pay back your debt, they leave that until you are paying 23% interest along with monthly account keeping fees. Easy credit has been a necessity to continue consumption, a misguided attempt to maintain middle class lifestyles while people’s ability to afford those lifestyles was being undermined by the broader economy.
I think that our addiction to consumption and using expansion and growth as the only measures of a healthy economy are about to change dramatically.
This leads me to James Kunstler. I’m presently reading his book The Long Emergency in which he lays out his predictions for how our world will change post peak oil. A large part of his thesis revolves around the idea that there is no substitute available for oil, we are about to see a decline in its availability, but that our modern society is entirely constructed around the idea that oil is cheap and plentiful.
On Kunstler’s hit list are suburbs, commercial agriculture, global trade, and highways along with a few other sacred cows of the modern world. He argues that none of these things are sustainable once we start seeing oil scarcity and demonstrates, by referencing the oil shocks of the 70’s, how even a small reduction in oil availability can lead to enormous impacts on the economy and our way of life.
The volatility of oil prices over the past two years seems to fit the pattern predicted for peak oil, and we are certainly in the midst of the decade when it has been forecast. Are we ready to deal with a world where oil is rationed and expensive? Sadly I think we’re a long way from it. When something as obvious as climate change is being rejected by so many people, how on earth will they react to the idea that the oil age, and all of the 20th century advances that were made with it, are over and our way of life must change?
I don’t think that we’re headed for a Mad Max style post apocalyptic wasteland, but I do think that the era of commuting to the CBD of a major city from housing estates on the fringes will soon be a thing of the past. The question becomes, what else will be willing, or forced to give up as part of our new reality?