Recession, Depression or Economic Meltdown?

Hard times are coming, for some they are already here.

It now seems as though a recession is unavoidable, but how hard will it bite?

Over the last decade as house prices have risen exorbitantly, so has mortgage equity withdrawal as home owners have cashed in on the relatively cheap credit this affords them, and consequently British household debt is the highest recorded in World history.

So ultimately this debt has driven our economy (principally made up of the service sector, with manufacturing unable to compete in a global economy), and the significance of this is already being felt, with the BBC reporting that it 'shrank at its quickest rate in nearly seven years' during June!

This obviously has the potential to lead to a cycle of redundancies and a further decline in consumer spending, nothing new there. No, what is really frightening is the incredible rise in global oil prices, which are driving up the cost of living at a time when many peoples´ disposable income is falling.

I am sure I do not need to spell out just how vital oil is to our economy - in short it is a raw material required to manufacture plastic, pesticides and chemicals, transport goods, food and people and produce electricity. It is not an overstatement to say society would collapse without it.
Peak Oil

Back in 1956, M. King Hubbert theorized that as oil is a finite resource, that there would be a peak in the amount of oil that can be extracted from any given reserve and duly speculated that the US oil reserves would peak in production in the 1970s. He was proved right.

Energy Return on Energy Investment (from Wikipedia)

When oil production first began in the mid-nineteenth century, the largest oil fields recovered fifty barrels of oil for every barrel used in the extraction, transportation and refining. This ratio is often referred to as the Energy Return on Energy Investment (EROI or EROEI). Currently, between one and five barrels of oil are recovered for each barrel-equivalent of energy used in the recovery process. As the EROEI drops to one, or equivalently the Net energy gain falls to zero, the oil production is no longer a net energy source. This happens long before the resource is physically exhausted.

Once oil production has peaked, demand will outstrip supply (ceteris paribus, for example assuming an alternative energy source hasn´t been discovered) and the price of oil will continue to rise.

Many now speculate that we are approaching Peak Oil globally (though this excludes reserves in territory such as Antarctica, in which no drilling rights exist), and some believe this is the real motive behind the USA´s decision to invade Iraq. Other sources indicate it may already have peaked -

The consequences of a global peak and then decline in oil production are far reaching, as I have already stated oil is integral in sustaining our modern society, in fact oil and fossil fuels, as an abundant source of energy, are what has enabled the global population to grow as it has done.

We will have to be more economical with our use of oil, though even with utilising new technologies such as more fuel efficient engines, one should expect countries´ economies to shrink and that our standards of living regress, in addition to civil unrest and possibly wars fought over oil and other resources, too.

It wasn´t until May this year that parliament has really addressed the issue, only then issuing a statement supported by 50 MPs. Prior to this the BNP was the only political party to acknowledge this potential catastrophe - no doubt our Ministers and MPs have been too busy with their snouts in the trough to notice.

50 MPs sign Peak Oil Commons Motion
Friday, 23 May 2008
50 MPs warn government that global oil production may be peaking

London, 23rd May 2008 - A cross-party group of MPs including former Liberal Democrat leader Sir Menzies Campbell have signed a Commons motion urging the government to review its estimates as to when global oil production will peak and begin to decline.
Will Britain cope in a Peak Oil inspired recession?

Consider that we no longer manufacture anything, that since around the turn of the century we have for the first time in many years been net oil importers, together with a burgeoning civil service which has swollen by 600,000 since 1998, the increased burden of the additional unemployed and the rising cost of importing food.

Finally, given all of this, how can our govenment justify further immigration - people who will consume food, services, fuel, etc - and would this exacerbate tensions between our communities? The future does not look bright for Britain.

Like the Roman

Tags: Peak Oil, Recession, Depression